Goes v. Vogler , 304 Neb. 848 ( 2020 )


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    03/20/2020 12:08 AM CDT
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    Nebraska Supreme Court Advance Sheets
    304 Nebraska Reports
    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    Tanner Goes, doing business as Goes Construction,
    appellee, v. Eric Vogler and Destini Vogler,
    husband and wife, appellants.
    Franklin Drywall, Inc., a Nebraska corporation,
    appellee, v. Eric Vogler and Destini Vogler,
    husband and wife, appellants, and
    FBM Lincoln et al., appellees.
    ___ N.W.2d ___
    Filed January 17, 2020.     Nos. S-18-1201, S-18-1203.
    1. Mechanics’ Liens: Foreclosure: Equity. An action to foreclose a con-
    struction lien is one grounded in equity.
    2. Equity: Appeal and Error. In an appeal of an equity action, an appel-
    late court tries factual questions de novo on the record and reaches
    a conclusion independent of the findings of the trial court, provided,
    where credible evidence is in conflict on a material issue of fact, the
    appellate court considers and may give weight to the fact that the trial
    judge heard and observed the witnesses and accepted one version of the
    facts rather than another.
    3. Breach of Contract: Damages. A suit for damages arising from breach
    of a contract presents an action at law.
    4. Contracts. A cost-plus contract as generally understood is one where
    the total cost to the contractor represents the whole payment to be made
    to him or her, plus a stated percentage of profit.
    5. Contracts: Mechanics’ Liens. Under cost-plus contracts, the amount
    owing the builder should be computed on the basis of the amount
    actually spent for labor, materials, and supplies which go into and
    become a part of the finished structure, including the amounts paid to
    subcontractors.
    6. ____: ____. In any cost-plus contract, there is an implicit understand-
    ing between the parties that the cost must be reasonable and proper.
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    Nebraska Supreme Court Advance Sheets
    304 Nebraska Reports
    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    Contractors do not have a fiduciary duty under a cost-plus contract as a
    matter of law, other than those obligations already required by law and
    the contract.
    Appeal from the District Court for Cass County: Michael
    A. Smith, Judge. Affirmed.
    Damien J. Wright and Natalie M. Hein, of Welch Law Firm,
    P.C., for appellants.
    James B. Luers, of Cada, Cada, Hoffman & Jewson, for
    appellee Tanner Goes.
    Troy J. Bird, of Hoppe Law Firm, L.L.C., for appellee
    Franklin Drywall, Inc.
    Timothy W. Nelsen, of Fankhouser, Nelsen, Werts, Ziskey
    & Merwin, P.C., L.L.O., for appellee Shelton Brothers
    Construction, LLC.
    Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
    Papik, and Freudenberg, JJ.
    Miller-Lerman, J.
    NATURE OF CASE
    The appellants, Eric Vogler and Destini Vogler, contracted
    with Shelton Brothers Construction, LLC (Shelton), for the
    construction of a residential home. Shelton and two of its sub-
    contractors, Tanner Goes, doing business as Goes Construction
    (Goes), and Franklin Drywall, Inc. (Franklin), subsequently
    filed construction liens and brought contract suits claiming
    unpaid balances for construction services rendered. Following
    trial on the consolidated cases, the district court determined
    that the construction contract between the Voglers and Shelton
    was a cost-plus agreement, that defects in workmanship were
    punch list items and not a breach by Shelton, and that the
    Voglers committed the first material breach of contract and
    owed damages to the contractor and subcontractors. The
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    Nebraska Supreme Court Advance Sheets
    304 Nebraska Reports
    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    Voglers appeal, and we ordered the appeals, S-18-1201 and
    S-18-1203, consolidated for appeal. On appeal, the Voglers
    claim, inter alia, that the contract was a fixed-price con-
    tract breached by Shelton and that, alternatively, even under
    a cost-plus contract, Shelton breached a fiduciary duty to
    provide a full accounting for its bills to the Voglers when it
    requested draw payments. We affirm with respect to all parties
    and claims.
    FACTS
    After the Voglers’ home was destroyed by fire, they hired
    Shelton to construct a new home in Nehawka, Nebraska, on
    the existing foundation. They hired Shelton as their general
    contractor. After months of negotiating and discussion, the par-
    ties entered into a contract in October 2015, memorialized by
    exhibits 2, 37, and 47 in the record (the contract). Although
    paragraph 4 of exhibit 47 states that it is a “cost plus contract”
    with specific fees for overhead, warranty, and profit to Shelton,
    elsewhere the contract states that “[t]he agreed upon price is
    $282,000.00.” The contract called for an initial payment of
    $28,000, with progress payments made as monthly draws.
    Under the contract, Shelton would be able to request a monthly
    draw, subject to approval by the Voglers, “as needed to pay for
    materials and services.” The payments were to be made within
    10 days of the request.
    Shelton and its subcontractors began work in October 2015,
    and as work progressed, various changes were made to the
    arrangement contemplated by the contract and the scope of
    work. One arrangement change was the fact that the Voglers
    and Shelton mutually waived the requirement of written change
    orders. One scope of work change was that framing for walls
    was adjusted and the foundation extended by 2 feet—resulting
    in modifications to the roof trusses and other features. Some of
    the changes caused spinoff delays and difficulties scheduling
    subcontractors. The Voglers became concerned with the lack of
    progress and communication by Shelton.
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    Nebraska Supreme Court Advance Sheets
    304 Nebraska Reports
    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    The Voglers made the initial downpayment and the first two
    requested draws. Shelton requested a third draw on February
    18, 2016, in the amount of $48,972.54. Alleging shoddy
    workmanship, a fear that Shelton would not finish the proj-
    ect, and a lack of accounting, the Voglers made only a par-
    tial payment on one of the draws requested by Shelton. The
    district court found that only $19,875.40 was paid on the
    third draw and that the payments were “as late as March
    13, 2016.”
    The Voglers contend that when making its draw requests,
    Shelton attached some, but not all, of the invoices from sub-
    contractors and suppliers, and the Voglers expressed concern
    as to how their money was being spent. In February 2016,
    Eric Vogler emailed Shelton requesting an accounting for the
    initial $28,000 downpayment. Shelton did not provide itemiza-
    tions or documentation of expenses to the Voglers’ satisfaction.
    The Voglers’ payments did not equal the draw requests, and
    Shelton terminated the contract. The Voglers hired another
    contractor to finish the home, and Shelton, Franklin, and Goes
    all filed construction liens with varying technical success. The
    three moved to foreclose upon the liens and asserted contract
    claims. Two consolidated cases encompassing all parties and
    claims proceeded to trial.
    In orders filed on November 26, 2018, the district court
    found that the Voglers withheld payment because of their
    concerns about the quality of the work, that the project would
    not be completed for the price stated in the contract, and
    that the work would not be completed on time. The district
    court stated that “[t]he justification for the Voglers’ failure to
    make timely payments hinges on their assertions that the par-
    ties had a fixed-price contract and that the contract required
    written change orders.” The district court concluded that the
    contract was not ambiguous and that it was for a cost-plus
    contract price, not a fixed cost contract price. Although the
    parties did not sign written change orders regarding changes
    to the project, the district court found that the parties’ mutual
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    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    conduct amounted to a waiver of the provisions in the contract
    requiring written change orders. The court determined that
    any deficiencies in the quality of the work were punch list
    items, which would have been cured in the ordinary course
    of completion of the work, and therefore were not a breach
    of contract by Shelton. Accordingly, the district court found
    that the Voglers’ suspension of payment constituted a breach
    of contract.
    Although FBM Lincoln was served, it did not enter an
    appearance or assert an interest in the real estate, and the dis-
    trict court found any interest of FBM Lincoln in the real estate
    would not be recognized.
    In case No. S-18-1201, the district court entered judgment
    against the Voglers in the amount of $64,603.42, wherein Goes
    was awarded $26,678 and Shelton received the remainder. In
    the consolidated case, case No. S-18-1203, the trial court found
    that Franklin’s lien was tardy and unenforceable pursuant to
    Neb. Rev. Stat. § 52-140 (Reissue 2010); however, the district
    court repeated its award against the Voglers and in favor of
    Shelton, but allocated $15,000 of Shelton’s award to Franklin
    based on Franklin’s successful breach of contract claim against
    Shelton. The Voglers appeal.
    ASSIGNMENTS OF ERROR
    On appeal, the Voglers assert, restated, that the district court
    erred when it (1) characterized the contract as a cost-plus con-
    tract, (2) found that the Voglers committed the first material
    breach of the contract with Shelton, and (3) awarded damages
    to Shelton, Franklin, and Goes.
    STANDARDS OF REVIEW
    [1,2] An action to foreclose a construction lien is one
    grounded in equity. Robison v. Madsen, 
    246 Neb. 22
    , 
    516 N.W.2d 594
    (1994). In an appeal of an equity action, an appel-
    late court tries factual questions de novo on the record and
    reaches a conclusion independent of the findings of the trial
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    GOES v. VOGLER
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    304 Neb. 848
    court, provided, where credible evidence is in conflict on a
    material issue of fact, the appellate court considers and may
    give weight to the fact that the trial judge heard and observed
    the witnesses and accepted one version of the facts rather than
    another. 
    Id. [3] A
    suit for damages arising from breach of a contract
    presents an action at law. Bloedorn Lumber Co. v. Nielson, 
    300 Neb. 722
    , 
    915 N.W.2d 786
    (2018).
    ANALYSIS
    The district court and parties have treated this case essen-
    tially as one arising from breach of contract. And although
    the record shows construction liens were filed, we believe the
    appropriate framework is predominantly a contract action and
    review the matter accordingly. See Tilt-Up Concrete v. State
    City/Federal, 
    261 Neb. 64
    , 
    621 N.W.2d 502
    (2001). With
    respect to breach, the central issue is whether the Voglers
    breached the contract first by failing to make draw payments
    to Shelton or whether Shelton breached the contract first
    under various theories advanced by the Voglers. Based on the
    language of the contract and the evidence at trial, we affirm
    the orders of the district court which found that the Voglers
    breached the contract, dismissed the Voglers’ cross-claims,
    and entered money judgments in favor of Shelton, Franklin,
    and Goes.
    On appeal, the Voglers contend that the district court erred
    when it concluded that the agreement was a cost-plus con-
    tract rather than a fixed-price contract. They argue, in the
    alternative, that even assuming the agreement was a cost-plus
    contract, Shelton breached its duty to provide information
    to the Voglers regarding the project cost and budget. They
    also argue that they are a “[p]rotected party” under Neb.
    Rev. Stat. § 52-129 (Reissue 2010) and that Shelton, and by
    extension Franklin, can only recover the difference between
    the prime contract price and the amount the Voglers had
    already paid.
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    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    The Parties Executed a
    Cost-Plus Contract.
    The Voglers’ first claim on appeal is that the district court
    erred when it characterized the contract as a cost-plus con-
    tract. Referring to language in paragraph 4 of the contract,
    which stated that “[t]he agreed upon price is $282,000.00,”
    the Volgers maintain that the parties intended that the price
    of the house was fixed and limited to $282,000. We conclude
    the district court did not err when it concluded that the agree-
    ment was a cost-plus contract, and we reject this assignment
    of error.
    The contract language provided in significant part as follows:
    4. The agreed upon price is $282,000.00 to be paid
    in monthly draws as needed to pay for materials and
    services provided during the building process. The first
    monthly draw shall be $28,000.00 and is due and pay-
    able upon signing of this contract. Additional draws to
    be applied on an as needed basis per month for services
    rendered and the balance of the contract will be 10%
    of the contract price at completion. All payments to be
    rendered from owner’s bank to Nebraska Title Company
    which will in turn distribute money to vendors/­contractors
    as allocated in draw submitted. This contract is to be
    executed as a cost plus contract where all costs for the
    project will be presented to the homeowners and the
    builder’s fees will be completed at 2% for warranty, 5%
    for overhead and 3% for profit or 10% of the total cost of
    all work performed.
    (Emphasis supplied.)
    [4,5] We have stated that a “cost-plus contract as gener-
    ally understood is one where the total cost to the contrac-
    tor represents the whole payment to be made to him, plus
    a stated percentage of profit.” Grothe v. Erickson, 
    157 Neb. 248
    , 251, 
    59 N.W.2d 368
    , 370 (1953). We have explained
    that under cost-plus contracts, the amount owing the builder
    should be computed on the basis of the amount actually spent
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    Nebraska Supreme Court Advance Sheets
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    GOES v. VOGLER
    Cite as 
    304 Neb. 848
    for labor, materials, and supplies which go into and become
    a part of the finished structure, including the amounts paid to
    subcontractors. Robison v. Madsen, 
    246 Neb. 22
    , 
    516 N.W.2d 594
    (1994).
    As noted by the district court, the language of paragraph 4
    of the contract, which we have highlighted above, explicitly
    states that the contract is a “cost plus contract,” and it describes
    the allocation of additional fees for overhead, warranty, and
    profit. Such language is consistent with the general understand-
    ing of a cost-plus contract and inconsistent with a fixed-price
    contract. Taking the contract language as a whole, the district
    court did not err when it concluded that the agreement between
    the Voglers and Shelton was a cost-plus contract. We reject this
    assignment of error.
    No Special Fiduciary Duty of Builder
    Under Cost-Plus Contract in the
    Absence of Agreement.
    The Voglers claim that even assuming the parties were sub-
    ject to a cost-plus contract, a contractor in a cost-plus contract
    has additional fiduciary duties to a homeowner as a matter of
    law, and that the district court erred by not explicitly discussing
    whether Shelton breached these duties and, consequently, the
    contract. As we noted above, we have stated that the “amount
    owing the builder should be computed on the basis of the
    amount actually spent for labor, materials, and supplies which
    go into and become a part of the finished structure, including
    the amounts paid to subcontractors.” Robison v. 
    Madsen, 246 Neb. at 27-28
    , 516 N.W.2d at 598. The Voglers contend that
    given the law just quoted, it necessarily follows that a contrac-
    tor must provide prompt, detailed accountings of actual costs
    incurred before taking progress payments and, furthermore,
    must inform the homeowner of potential cost overruns. The
    Voglers overstate the obligations of a contractor in general
    and, given the contract, in this case in particular. We reject this
    assignment of error.
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    Although there is case law to suggest that occasionally a
    cost-plus arrangement may place additional burdens upon a
    contractor, this is typically recognized where the contract lan-
    guage provides that “the contractor accepts a ‘relationship of
    trust and confidence established’ between it and the owner.” 2
    Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor
    on Construction Law § 6:81 at 641 (2002). For example, in a
    Maryland appellate case relied on by the Voglers, the contrac-
    tor accepted a “‘relationship of trust and confidence’” with the
    homeowners and explicitly agreed to further their interests by
    performing “‘the Work . . . in the most . . . economical man-
    ner consistent with’” their interests and to “‘keep . . . full and
    detail[ed] accounts.’” Jones v. J.H. Hiser Constr. Co., 60 Md.
    App. 671, 676, 
    484 A.2d 302
    , 304 (1984). Given these provi-
    sions, the court held that there was a relationship of trust and
    confidence between the parties, i.e., a fiduciary relationship
    grounded in the explicit language of the contract. Jones v. J.H.
    Hiser Constr. 
    Co., supra
    .
    [6] The contract between the Voglers and Shelton does not
    explicitly contain language creating a fiduciary relationship.
    As a general matter, it has been observed and we agree that
    “‘[i]n any cost-plus contract there is an implicit understand-
    ing between the parties that the cost must be reasonable and
    proper.’” Forrest Const. Co., LLC v. Laughlin, 
    337 S.W.3d 211
    , 223 (Tenn. App. 2009) (quoting Kerner v. Gilt, 
    296 So. 2d
    428 (La. App. 1974)). However, other than those already
    required by law and by the parties’ contracts, we decline to
    impose further fiduciary duties on contractors as a matter
    of law.
    Here, the cost-plus contract required that “all costs for the
    project will be presented to the homeowners and the builder’s
    fees will be completed at . . . 10% of the total cost of all work
    performed.” Under the contract, Shelton was required to pre­
    sent its actual costs to the Voglers to determine the builder’s
    fee at completion. According to the contract, the progress
    draws were “to be paid in monthly draws as needed to pay
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    GOES v. VOGLER
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    for materials and services.” Contrary to the Voglers’ argument,
    we do not read this provision as requiring only retrospective
    payments nor do we read this provision as requiring extensive
    accounting. Compare Forrest Const. Co., LLC v. 
    Laughlin, 337 S.W.3d at 222
    (stating that contract language provided that
    each draw would be submitted with “‘full back-up support
    for all amounts requested’” and contractor “‘shall have full
    responsibility and obligation to keep full and accurate records
    of all costs and expenses to satisfy tax laws and [o]wner’”
    (emphasis omitted)).
    Although it appears the Voglers were deeply dissatisfied
    with their communication with Shelton and did not want to
    pay prospectively for work not yet performed, the record
    does not show that Shelton breached any term of the con-
    tract. A managing partner in Shelton testified that after the
    Voglers questioned the initial downpayment, the parties “talked
    through that, and then additional money was paid out” to “get
    everybody started.” Although it would have been helpful to
    all parties and to the court if Shelton had provided periodic
    detailed invoices, it appears from the record that the parties
    had periodic conversations about the costs which, if believed,
    were sufficient for the district court to conclude that Shelton’s
    obligations under the contract had been met when it requested
    draw payments.
    Nor does the record show that Shelton breached a duty to
    keep costs reasonable and proper. It is undisputed that the
    Voglers, consistent with a cost-plus contract, elected for several
    changes or upgrades from the initial build plan. Among other
    aesthetic changes, a wall was moved 2 feet back on the back
    of the house, and windows, doors, a fireplace, and angled walls
    were added, increasing the project costs. Although the Voglers
    raised concerns at trial and on appeal that the project costs
    would have been unreasonable and improper, the evidence, if
    believed, was generally consistent with the conclusion that cost
    overruns were explained by the items added by the Voglers
    and the necessity of the situation “as is” and that the overruns
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    were not a failure by Shelton to keep costs reasonable. At trial,
    a managing partner in Shelton testified that if Shelton had
    been allowed to finish and the Voglers had followed the allow-
    ances, Shelton could have brought the contract in at $282,000
    and on time. The district court, having heard the evidence
    and reviewed the documentation in the record, found that the
    Voglers breached their contract with Shelton and awarded
    damages to Shelton and its subcontractors. Where credible
    evidence is in conflict, we consider and may give weight to the
    fact that the trial judge heard and observed the witnesses and
    accepted one version of the facts rather than another. Robison
    v. Madsen, 
    246 Neb. 22
    , 
    516 N.W.2d 594
    (1994). We find no
    merit to this assignment of error.
    Goes’ Construction Lien.
    The court ordered that Goes was to receive $26,678. The
    Voglers claim that the court erred in making an award to
    Goes. The Voglers contend that Goes is not entitled to recover
    the amount sought in its lien because the Voglers are a “[p]ro­­-
    tected party” contracting owner under § 52-129. Pursuant to
    Neb. Rev. Stat. § 52-136 (Reissue 2010), lien liability is
    limited to the difference between the “prime contract price”
    less payments properly made thereon. However, under Neb.
    Rev. Stat. § 52-127(2) (Reissue 2010), the “[c]ontract price”
    is defined, in pertinent part, as “the amount agreed upon by
    the contracting parties for performing services and furnishing
    materials covered by the contract, increased or diminished by
    the price of change orders or extras.” The Voglers’ argument
    and claim that it has already paid the prime contract price is
    not supported by the record, and we reject this assignment
    of error.
    Eric Vogler testified that he had paid $203,485 on the con-
    tract with Shelton, but the contract provided for $282,000 even
    before the cost of changes and extras were added. The Voglers’
    payments to other entities as part of their project did not
    reduce their contract liability to Shelton under the contract. The
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    Voglers remain obligated to Goes and the other parties who
    perfected liens for the unpaid part of their contract, as ordered
    by the district court. See § 52-136.
    CONCLUSION
    We determine that the district court did not err when it found
    that the contract was a cost-plus contract and that the Voglers
    breached their contract with Shelton when they failed to pay
    draws required under the contract. We conclude that Shelton
    met its obligations under the contract to receive draw payments
    for materials and to pay subcontractors and that Shelton did
    not fail to ensure costs were reasonable and proper under the
    circumstances. Any remaining assignments of error not sum-
    marized above have been considered and are without merit.
    The orders and judgments of the district court are affirmed
    with respect to all parties and claims.
    Affirmed.