Amprite Electric v. Tennessee Stadium Group ( 2003 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
July 10, 2003 Session
AMPRITE ELECTRIC COMPANY v. TENNESSEE STADIUM GROUP,
LLP
Appeal from the Chancery Court for Davidson County
No. 99-2847-III Ellen Hobbs Lyle, Chancellor
No. M2002-00892-COA-R3-CV - Filed September 22, 2003
The electrical subcontractor on the Adelphia Stadium job was required by the contractor, on 212
occasions, to perform extra work. Although the subcontract provided that written change orders
must precede and authorize extra work, this requirement was soon mutually abandoned because the
contractor, encouraged by the owner, was concerned about a timely completion. The principal issue
concerns the dollar amount of compensation for the extra work. Amprite priced its extra work
according to manuals used in the construction industry, as contrasted to its actual costs plus 10
percent, as the subcontract provides. Amprite concedes that although its actual costs plus 10 percent
were substantially less than the amounts claimed, the contractor was estopped to deny the greater
compensation. The trial court held that the contract was abandoned and that, in lieu, a different
contract would be implied. Amprite was accordingly awarded compensation for “8686 hours never
worked, $90,245.00 for materials never purchased and $6,877.00 for taxes never paid,”for a total
recovery of $1,131,311.66. Contractor appeals insisting that the contract was not abandoned and that
its provisions control. We hold that the requirement of written change orders was waived by mutual
agreement but that the remainder of the contract was enforceable. The judgment is modified to allow
a recovery of $170,084.00.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court as Modified is
Affirmed
WILLIAM H. INMAN , SR. J., delivered the opinion of the court, in which DAVID R. FARMER and
HOLLY M. KIRBY, J.J., joined.
Phillip Byron Jones, Nashville, Tennessee, attorney for appellant, Amprite Electric Company.
Craig V. Gabbert, Jr., Nashville, Tennessee, and F. Barry McCabe, Atlanta, Georgia, for the
appellee,, Tennessee Stadium Group, LLP.
Todd E. Panther, Nashville, Tennessee, for the Amicus Curiae, The American Subcontractors
Association, American Subcontractors Association of Middle Tennessee, and American
Subcontractors Association of Western Tennessee.
OPINION
This litigation arises out of the construction of the NFL Stadium (“the Project”) for the
Tennessee Titans. Amprite Electric Company (“Amprite”, “the Plaintiff” or “the Subcontractor”)
was awarded a subcontract for the electrical work (“the Subcontract”) and was ultimately paid
$10,890,000.00 in accordance with the Subcontract by Tennessee Stadium Group, L.L.P. ( “the
Contractor” or “the Defendant”), a limited liability partnership of two foreign corporations
experienced in the construction of large projects. During the construction, changes in the various
drawings were required to be made, for which the Plaintiff seeks compensation attributable to the
extra work occasioned by such changes.
As pertinent here, the Subcontract provides:
CHANGE ORDERS. Owner has reserved the right under the
Contract documents to require Contractor to make changes in the
work, including additions thereto and deletions therefrom. Without
notice to any surety and without invaliding this Subcontract,
Contractor may from time to time, by written order (“Change Order”)
to Subcontractor, make changes in the work to the same extent and in
the same manner as may be required of Contractor by Owner under
the Contract documents. Subcontractor shall thereupon perform the
changed work in accordance with the terms of this Subcontract and
the Change Order.
Upon request of Contractor, and in time and manner sufficient to
permit Contractor to comply with its obligations under the Contract
documents, Subcontractor shall submit a written proposal for any
applicable price and time adjustment attributable to the changed
work, detailed as Contractor or Owner may require, supported and
conforming to the requirements of the Contract documents.
Where a Change Order is issued pursuant to a change required by the
Owner, the price shall be adjusted by the net amount of any direct
savings and direct costs plus profit percentage attributable to the
Change Order and the time for performance of the work may be
adjusted according to the Contract documents . . .
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As used in this Subcontract, Subcontractor’s direct savings and direct
costs shall mean and be limited to the actual amount of the following:
cost of materials, including sales tax and cost of delivery; cost of
labor, including social security, old age and unemployment insurance,
and fringe benefits required by agreement or custom; worker’s
compensation insurance; bond premiums if and to the extent actually
increased; and actual rent not greater than the rent charged in the
locale, or reasonable value of Subcontractor-owned equipment and
machinery.
If the parties are able to agree upon the amount of the price
adjustment and the extent of any time adjustment, such adjustments
shall be set-forth in the Change Order which shall be accepted by
Subcontractor. If the parties are unable to agree upon such
adjustment, Contractor may elect to issue the Change Order to
Subcontractor directly such work to be performed by Subcontractor
and any adjustments to price or time shall be subject to ultimate
determination in accordance with this changed work . . . in no event
shall Subcontractor proceed with changed work without a Change
Order issued pursuant to this paragraph 8 and Contractor shall not be
liable for any additional costs incurred or delays encountered in the
performance of such changed work without such a written Change
Order.
From the beginning all parties understood that the construction of the stadium was to be
aggressively performed. The Construction Management Agreement (“Contract”) between the
Contractor and the Metropolitan Government of Nashville for Davidson County, Metropolitan
Development and Housing Agency (“the Owner” or “ MDHA”), included a $10 million contingency
fund to be used by the Contractor, in it discretion, to resolve problems arising from additional work
in order to keep the Project on schedule. If this fund was not depleted the Contractor retained it as
extra profit.
To the Subcontract was attached a document identified as Schedule H, which was to be
utilized as a uniform method to track the nature and cost of extra work. It provided an agreed upon
hourly rate for labor of $27.97 for extra work, and a flat percentage rate for small tool and other
expenses. It was also agreed that the hours necessary to perform certain tasks would be those
estimated by the National Electrical Contractors Association (“NECA”), and that the pricing of
materials for extra work would be as prescribed by the Trade Service Corporation’s publication.
While the basic Contract provided that Amprite would be paid ‘direct costs’ for extra work, Schedule
H provided that, in calculating these costs, fixed or set rates and prescribed units would be used.
It was agreed that if Amprite was asked to make changes, it would provide Contractor with
a Change Order Proposal, commonly referred to as a “COP.” Each COP would have attached a
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Schedule H in the format provided for in the Subcontract. Pricing would be consistent with NECA
and the Trade Service Corporation. The COP would then be approved and thereafter, a change order
would be issued, and the additional work would commence consistent with the Subcontract that
provided that in no event was Amprite to perform extra work unless a change order was issued.
Schedule H was a creation of the Contractor’s Project Manager, which had used a similar
method in construction of the Olympic Stadium in Atlanta, Georgia. But Amprite historically used
Superintendent Work Orders (“SWOs”) to document requests for additional work. However, the
Contractor insisted during the negotiation phase that the Schedule H be used and that it be attached
to and incorporated into the Subcontract. This was because the Manager was familiar with the
NECA Manual and the Trade Service Corporation publication and he believed that reliance upon
these Manuals was a “fair and reasonable” method to price additional work. According to the
Manager, it is also preferable to have a price agreed upon prior to starting extra work in order to
eliminate the risks of estimating costs.
Moreover, the Contractor also had an established corporate policy regarding extra work,
change orders, and payment for extra work. That policy was promulgated by Contractor’s Executive
Committee and compliance was mandated by Contractor’s auditors. It provided for the execution
of change orders before extra work is started.
The Contractor required Amprite to perform additional work to expedite the job or to
reconcile problems in the drawings. For instance, the mechanical drawings consistently called for
4-phase motors for pizza ovens in concession stands. The mechanical contractor ordered ovens
consistent with the plans, but, the electrical drawings required Amprite to install wiring for 3-phase
motors. When this was discovered, the Contractor asked Amprite to replace the wiring in order to
facilitate the 4-phase motors in dozens of concession stands.
The Contractor requested Amprite on 212 occasions to perform additional and/or modified
work, without requiring Amprite to provide in advance a COP and/or a Schedule H for costs. The
Project Manager, who regularly instructed Amprite to perform the additional work, admittedly never
asked Amprite to provide a Schedule H before requiring Amprite to perform the additional work.
He informed Amprite consistently that the additional work was needed and that Amprite should
“proceed immediately” and bill Contractor thereafter according to Schedule H. Amprite complied
with those requests since it was repeatedly assured by the Contractor that it would be paid and that
change orders would be issued. Contractor acknowledges making these representations of payment
and concedes that it was “absolutely . . . reasonable for Amprite to believe” Contractor’s promises
of payment.
Mr. Lassetter, the Project Manager, testified concerning this practice:
Q. You admitted yesterday that there were occasions out in the
field where you also told Amprite to proceed ahead and you
also made a statement to them that they would be paid.
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A. I made the statement yesterday, and I stand by that statement,
any time [Contractor] directed Amprite to do work on
[Contractor’s] behalf, not an Owner initiated change, I did tell
Amprite they would be paid.
Q. Did you ever tell them that before they started the work?
A. Absolutely.
Q. Do you think they were reasonable to believe it?
A. I think that there was trust there and I think it was reasonable
for Amprite Electric to believe Louie Lassetter, yes, or, other
[Contractor] representatives.
Q. You said proceed and do this work and you will be paid?
A. It was a [Contractor] issue, yet, I would say that, and I think
that would be reasonable for Amprite to assume and believe
me when I said they were going to be paid for it.
Mr. Lassetter conceded that this method, i.e., proceeding with work first (without the benefit
of a signed change order) deviated from the contractual scenario and “does involve risks.”
In sum, Contractor essentially abandoned the contractual provision of the Subcontract
regarding change orders and in the process ignored its corporate policy which mandated written
change orders before the extra work was commenced. The absence, therefore, of a written change
order is no defense to the claim of the Subcontractor for compensation for the extra work entailed
by the oral changes directed by the Contractor. See, The Realty Shop, Inc. v. RR Westminister
Holding, Inc., 7 S.W.3d 581 (Tenn. Ct. App. 1999). Whether this conclusion is propelled by
implication, or by promissory estoppel, or by quantum meruit, or common sense, is needless
speculation. Contractor concedes the point.
But this easy resolution does not carry with it the further conclusion that the Subcontractor
was free to ignore the contractual provisions respecting the amount of its compensation for work
occasioned by requests to perform additional work.
If there were no advance change orders, Amprite confirmed the requests by letter and a
Schedule H calculating the costs according to NECA and the Manual of Trade Service Corporation,
utilizing a software styled AcuBid. The extra work for each of the 212 requests using the Schedule
H format, was priced by the NECA and Trade Service publications.
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The first 24 COPs submitted by Amprite were accepted by the Contractor, who paid Amprite
$228,977.00 for the additional work. But the Contractor balked at payment for the remaining 188
COPs; according to Burke Waugh, a senior executive of the Contractor, the Owner was informed
that the extra work could not be further funded without approved change orders, even though “we
were having to proceed with the work before we could get them to return them approved.” Initially,
the Contractor’s position was that it could not pay Amprite for the 188 COPs because it had not been
paid by the Owner, but by April 19, 2000, the Owner paid Contractor the final amount of the
contracted price, together with the contingency fee. The Contractor still declined to pay for the
remaining COPs, asserting that Amprite had grossly overcharged for the extra work. The essence
of the defense is the purported excessiveness of Amprite’s pricing of the COPs.
The Contractor asserted, before trial, upon the trial, and in this Court, that Amprite’s claims
for extra work “were drastically overstated,” and that Amprite’s cost records show that it
misrepresented its direct costs of work. Contractor further asserts that the trial court held that
Amprite was entitled to recover its admittedly overstated claims for extra work under an implied-in-
fact theory, and awarded Amprite compensation for “8686 hours never worked, $90,245.00 for
materials never purchased, and $6,877.00 for taxes never paid.” This is heady language and a boost
to our resolve to study the record of this protracted trial at length. Amprite was awarded
$1,265,090.00 for extra work performed, $78,806.79 for certain insurance claims, later discussed,
prejudgment interest of 5 percent beginning May 14, 2000, and 5 percent interest amounting to
$52,062.87 on retained funds, less credits of $264,648.00, for a total recovery of $1,131,311.66.
Contractor appeals, and presents for review these issues which we reproduce verbatim:
1. Did the trial court err when it ordered Tennessee Stadium Group (“TSG”) to
compensate Amprite Electric Company (“Amprite”) for hours Amprite
admittedly never worked, for materials Amprite admittedly never bought, and
for taxes Amprite admittedly never paid?
2. When TSG and Amprite had entered an enforceable written construction
contract that expressly provides that any extra work Amprite performs will
be compensated at cost-plus-10%, and when Amprite acknowledged at trial
that cost-plus-10% was the proper formula for awarding any compensation
for extra work, did the trial court err by awarding Amprite a much greater
amount under an implied-contract theory?
3. Did the trial court err when it held that TSG was estopped from refusing to
pay costs that Amprite admits were never incurred.
4. Did the trial court err by requiring TSG to pay Amprite twice for certain
work?
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5. Did the trial court err by awarding Amprite judgment on it “builder’s risk”
insurance claims when (a) Amprite offered no evidence in support of those
claims; and (b) the parties’ contract expressly precludes builder’s risk claims?
6. Did the trial court err when it awarded Amprite interest on retainage that
exceeds the compound interest actually earned on the funds in the retainage
accounts?
7. Did the trial court properly award Amprite pre-judgment interest when TSG
reasonably contested Amprite’s admittedly inflated claims?
Amprite also presents for review these issues:
1. Whether the Chancellor, in light of Contractor’s admissions, correctly held
that Contractor had abandoned the Contract’s time consuming Change Order
provisions and created instead a separate Contract, implied and by estoppel,
as a result of a consistent course of dealing.
2. Whether the Chancellor’s calculation of costs, per the Schedule H format,
was correct in light of Contractor’s admissions that the idea for Schedule H
was Contractor’s, that it had used the format on earlier jobs, that it used it
with other Sub-Contractors on this Project, and that it accepted that form
without objection in connection with Amprite’s initial bills.
Because the presented issues are tautological, we do not discuss them in seriatim, but
generally. Our review is de novo on the record accompanied with a presumption of correctness, as
to factual matters, unless the evidence otherwise preponderates. Rule 13(d) T.R.A.P. Issues of law
carry no presumption of correctness. Adams v. Dean Roofing Co., 715 S.W.2d 341 (Tenn. Ct. App.
1986). If the aggregate weight of the evidence demonstrates that a finding of fact other than the one
found by the trial court is more probably true, the judgment must be reversed and rendered. See,
Realty Shop Inc. v. RR Westminister Holding Inc., 7 S.W.3d 581 (Tenn. Ct. App. 1999).
I.
The trial court held:
The plaintiff’s legal right to recover under Tennessee law for this
work is not by the court enforcing the terms of the parties contract.
The court determines that the contract does not apply to these COPs.
Instead, the court awards the recovery based on contract in fact and
estoppel.
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This conclusion, with which we cannot agree, is essentially based on the finding that the
Contractor “made a deliberate decision to dispose with the delay of the change order process so as
to bring the project in on time.” This finding is supported by a preponderance of the evidence, but
in our judgment it does not justify a nullification of the entire Contract. We think the parties
essentially waived the requirement for written change orders, a common occurrence, but this waiver,
or abrogation of the contractual provision, in no way affected the amount of the compensation for
extra work to which Amprite was justly entitled. See, Realty Shop, supra.
In this jurisdiction, contracts are not taken lightly, and their interpretation is a matter of law
the aim of which is first to ascertain and then to give effect to the intentions of the parties. See,
Gredig v. Tennessee Farmers Mut. Ins. Co., 891 S.W.2d 909 (Tenn. Ct. App. 1994). As we held
in Realty Shop, supra, these intentions, in written contracts, are reflected in the contracts. Hall v.
Jeffers, 767 S.W.2d 654 (Tenn. Ct. App. 1988). Absent fraud, mistake or waiver, courts are required
to interpret contracts as written, giving the language used a natural meaning, and must strive to avoid
constructions which create ambiguities where none would otherwise exist. Whaley v. Underwood,
922 S.W.2d 110 (Tenn. Ct. App. 1995). It is firmly planted in our jurisdiction that the courts may
not make a new contract for the parties. Petty v. Sloan, 277 S.W.2d 355 (Tenn. 1955).
Against the backdrop of these settled principles, we conclude that the trial court erred in
nullifying the written contract and, in lieu, substituting the legal theories of contract-in-fact and
estoppel as bases for recovery. We cannot conceive that such drasticity was required in order to
adjust the equities between these parties. To this end it is well to keep in mind, as this record reaches
us, that the Contractor does not dispute that the extra work was performed by Amprite, that the
Contractor ordered or approved the extra work, and that Amprite is entitled to be compensated.
Contractor insists that the intention of the parties controls the issue of the amount of
compensation, which must be ascertained from the Contract, citing Commerce Street Co. v.
Goodyear Tire & Rubber Co., 215 S.W.2d 4 (Tenn. Ct. App. 1948) and Galleria Asso. v. Mogk, 34
S.W.3d 874 (Tenn. Ct. App. 2000). Its continuing argument is that the Subcontract provides that
Amprite is entitled to receive only its direct costs plus 10 percent for extra work performed. Direct
cost as defined in the Contract is the actual cost of materials, including sales taxes and delivery
charges, costs of labor, including Social Security, old-age and unemployment, insurance and fringe
benefits required by custom, worker’s compensation insurance, bond premiums, and applicable rent
charges.
The extra work performed by Amprite was recorded in separate job numbers. These cost data
were maintained at its home offices and were periodically furnished to its job-site office. It was
frequently the case that the job costs, as officially recorded, conflicted with the costs reflected on the
COPs.1
1
Amprite’s executive conceded upon the trial that if a Schedule H attached to a COP conflicted with the
internal cost records, the cost records should control. The trial court noted: “The defendant proved that in numerous
(continued...)
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Suffice to state that during the progress of this protracted trial, Amprite conceded time and
again, that many of the 188 COPs with Schedules H attached did not accurately reflect its direct costs
as required by the Contract. For instance, in COP 42, with a Schedule H attached, Amprite
represented that it incurred 415 man-hours, although its internal cost records revealed only 154
hours; in COP 115 there was a discrepancy of 627 hours; in COP 139, a discrepancy of 505 hours;
in COP 144, a discrepancy of 402 hours; in COP 90, a discrepancy of 395 hours; in COP 43 a
discrepancy of 313 hours; in COP 75, a discrepancy of 214 hours; in COP 130, a discrepancy of 176
hours; in COP 88, a discrepancy of 174 hours. In sum, Amprite represented that it had invested
19,940 man-hours for extra work, when its internal cost records revealed that it had only worked
11,254 man-hours. We reiterate that Amprite verified, upon the trial, the accuracy of its internal cost
records.
With respect to the cost of materials purchased to perform extra work, according to COP 121
Amprite spent $19,881.00, when its internal cost records reveal it spent only $7,387.00; COP 115
claims an expenditure of $14,312.00 as contrasted to internal records revealing that the expenditure
was $4,559.00; COP 144 claims an expenditure of $25,901.00, as contrasted to the internal record
revealing the expenditure was $18,339.00. COPs 42, 77, 152, 130, 116, 113, 188 collectively claim
an expenditure of $44,838.00 as contrasted to actual costs of $25,643.00.
Amprite argues that the Schedule H document, attached to the Subcontract and to each COP,
was “established as a uniform measure to track the nature and price of any extra work,” and since
it provided for an hourly labor rate of $27.99 for extra work, plus additional amounts for other costs,
the “direct costs” provided for by the Contract would be calculated by using the fixed ratio used in
Schedule H. It further argues that the Contractor’s Manager testified that the parties agreed that the
hours necessary to perform a certain job would be as prescribed by the NECA Manual.
But we have studied the Manager’s testimony carefully. He testified that the NECA rates
could be used only when pricing an estimate before the work was performed. Significantly,
Amprite’s Manager testified:
Q. And so rather than go through each and every [COP] you
would agree . . . that if there is a discrepancy between
Amprite’s cost report tracking a given COP, and the Schedule
H submitted to TSG [the Contractor] the actual cost should
govern, correct?
A. Yes, sir.
The Contractor argues that Amprite’s Manager repeatedly admitted that Amprite knew the
Contract required it to track its actual costs for extra work, that it knew it was not entitled to more
1
(...continued)
instances the Schedule H forms attached to the COPs listed above deviate from the actual costs incurred in performing
the work.” As to this, there can be no d oubt, the Plaintiff conce des the fact.
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than actual costs plus 10 percent, that it knew the Defendant Contractor was relying on Amprite to
present it actual costs, but repeatedly submitted Schedule H forms which contained amounts in
excess of actual costs, that the Schedule H forms are not a proper basis for determining the amount
of compensation due Amprite, and that the proper way to compensate Amprite is to resolve each
discrepancy between any Schedule H and its corresponding cost report by reliance upon the cost
report and revise the COP claim to reflect the direct cost plus 10 percent. The record supports this
argument. The judgment represents a substantial windfall for Amprite2 which cannot reasonably be
justified under any rationale. Amprite is entitled to recover its actual costs for the extra work plus
10 percent, as its Subcontract provides, and nothing more.
Estoppel
COPs 1 through 24 were accepted by the Contractor, and were later incorporated into eight
Change Orders signed by the Contractor which increased Amprite’s Contract by $228,977.00 which
was routinely paid. Amprite consequently argues that Contractor is estopped to question the
remaining COPs, because the proof established clearly that the Contractor agreed to pay for the extra
work and did so on twenty-four occasions. We think this argument overlooks the fact that the
Contractor, in this litigation, does not deny that Amprite is entitled to be paid for the extra work
performed; the issue is the amount of the compensation. The principle of estoppel is not implicated
in any way insofar as the amount of compensation is concerned. Amprite relies on Realty Shop,
supra, which is inapposite here since the Contractor agreed that Amprite was entitled to be
compensated for extra work.
The Contractor cannot be estopped from paying the Schedule H amounts merely because it
failed to discover in a timely manner that these amounts were more than Amprite’s actual costs plus
10 percent.
The doctrine of equitable estoppel requires evidence of conduct amounting to false
representation or concealment of material facts, the intention that such conduct shall be acted upon
by the other party, and knowledge of the real facts. Werne v. Sanderson, 954 S.W.2d 742 (Tenn.
Ct. App. 1997). The party asserting estoppel must prove that it had no knowledge of the truth and
could not obtain such knowledge, and that it changed its position to its detriment. See, Warren Bros.
v. Metro Govt., 540 S.W.2d 243 (Tenn. Ct. App. 1976). This point need not be further labored.
Extra Costs
The Subcontract defines extra costs in plain language, heretofore recited. Amprite argues
that it was justified in using the estimates prescribed by the Manuals, notwithstanding that these
estimates far exceeded the actual costs recorded in its records and vouchers offered as accurate by
2
Amprite somewhat cryptically refers to the continency fee as having been paid to the Contractor as a “buffer
to cover things left out” if the Guaranteed Maximum Price was inadequate. But the Owners representative testified that
the “buffer” was spent on various subco ntracto rs, and was “no t profit to T SG [the Contractor}.”
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its executives. We cannot under any legal principle affix a judicial imprimatur to this argument,
which redefines windfall. Contractor describes Amprite’s bills as “unreasonable, fictitious, and
grossly inflated,” and far in excess of actual costs plus 10 percent as contractually provided. We
agree.
The Builder’s Risk Claims
Amprite was awarded $78,806.79 “on its builder’s risk claims.”
The Subcontract provides
[Amprite] hereby acknowledges it obligation for any loss to its work,
including stored materials, paid for or not, whether or not such loss
is reimbursable by Builder’s Risk Insurance.
Amprite’s builder’s risk claims involved repairs to damaged duct work, damage to electric
equipment, and tornado damage. Contractor argues that Amprite failed to meet its burden of proof
on this issue because Amprite admitted that it did not know whether these claims were valid or
whether its losses had been paid by insurance.
Amprite alleged “also outstanding are three claims on Contractor’s Builders Risk Insurance
which total $96,977.04. Amprite reserves the right to pursue those claims if unpaid.” The complaint
was amended to allege “the defendant has since made a small payment on the Builders Risk Claim,
thereby reducing it to $78,806.79.” It appears to be reasonably inferential that the builder’s risk
coverage assumed the balance, but the point is not crucial in light of the quoted contractual
provision.
The Defendant pleaded that any payments due to Amprite “for these builder’s risk claims are
contingent on approval and payment by MDHA, which has not yet occurred.”
Amprite’s Manager testified that the three claims were submitted [for payment] to the
builder’s risk insurance company, but he had no knowledge of whether payment had been made.
The trial court’s basis for its ruling was “the . . . contract requires a waiver of insurance to
be in writing. The defendants did not present a signed waiver.” The Contract provided that its terms
can be changed only in writing; we find no provision in the Contract which amends the quoted
provision that Amprite acknowledges its obligation for any loss for its work. The proof presented
is meager and somewhat nebulous, and falls short of establishing the liability of the Contractor for
these losses.
Interest on Retained Funds
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The trial court awarded Amprite $52,062.87 for “interest wrongfully withheld” on funds
retained by the Contractor from each payment request by Amprite. The Subcontract provides for
retainage in boiler plate language as one assurance the work will be properly accomplished by the
subcontractor.
Tennessee Code Annotated § 66-11-144 provides that the retained funds shall be deposited
in a separate escrow account but “shall become the sole and separate property of the . . .
subcontractor. . . . All funds accumulated in the escrow account together with any interest thereon
shall be paid immediately to the . . . subcontractor” upon satisfactory completion of the contract.
The proof established that the retention was deposited “to two specific cash accounts” by the
Owner, which were interest-bearing at a rate not revealed, and apparently not inquired into. The
Contractor paid the subcontractors, including the plaintiff Amprite, the actual interest earned. The
total amount of Amprite’s retention was $555,948.85, the balance of which, $222,379.54, was
“released to Amprite” on May 17, 2000.3
Amprite contends that the Contractor violated the statutory requirement that the escrowed
funds be deposited in a separate account. Contractor contends that it simply commingled the
retained funds of all of its subcontractors which is not prohibited by the statute. In any event we do
not see how the procedure employed adversely affected Amprite.
Contractor contends that the calculation of interest by Amprite is erroneous because (1) a
fictitious rate of interest [5 percent] was applied4 as opposed to the actual compound interest rate
earned, (2) the accountant failed to consider - did not deduct from the principal - $60,000.00
withheld by the Owner for lighting Amprite admittedly did not install, (3) the award of interest on
the retention did not take into account the compound interest earned and paid to Amprite, and (4)
since the Owner withheld the $60,000.00, Contractor could not be liable for interest thereon. We
conclude that from all the evidence this critique of Amprite’s calculation of interest is well taken,
but in any event all the interest earned on the retainage was paid to Amprite. The award of additional
interest is vacated.
Pre-Judgment Interest
Contractor argues that the trial judge erroneously awarded pre-judgment interest because the
costs Amprite incurred are not related to the judgment it seeks, pointing out that the claim was
unliquidated and reasonably disputed.
3
$60,000 .00 remained in the retention account owing to a dispute concerning work apparently never performed
by Amprite.
4
The record does not reveal the reason why a 5 percent rate was utilized by the accountant. It appears to have
been arbitrary.
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It is provided by statute that pre-judgment interest may be awarded in accordance with
equitable principles. Tenn. Code Ann. § 47-14-123. In Myint v. Allstate Ins. Co., 970 S.W.2d 920(Tenn. 1998) our Supreme Court explained that it
. . . is within the sound discretion of the trial court and the decision will not be
disturbed by an appellate court unless the record reveals a manifest and palpable
abuse of discretion. . . . This standard of review clearly vests the trial court with
considerable deference in the prejudgment interest decision. Generally stated, the
abuse of discretion standard does not authorize an appellate court to merely substitute
its judgment for that of the trial court. Thus, in cases where the evidence supports
the trial court’s decision, no abuse of discretion is found.
The Supreme Court expounded further:
Foremost are the principles of equity. . . . Simply stated, the court must decide
whether the award of prejudgment interest is fair, given the particular circumstances
of the case. In reaching an equitable decision, a court must keep in mind that the
purpose of awarding the interest is to fully compensate a plaintiff for the loss of the
use of funds to which he or she was legally entitled, not to penalize a defendant for
wrongdoing. . . .
In addition to the principles of equity, two other criteria have emerged from
Tennessee common law. The first criterion provides that prejudgment interest is
allowed when the amount of the obligation is certain, or can be ascertained by a
proper accounting, and the amount is not disputed on reasonable grounds. . . . The
second provides that interest is allowed when the existence of the obligation itself is
not disputed on reasonable grounds.
Had Amprite sought to recover only its actual costs plus 10 percent, it unquestionably would
be entitled to pre-judgement interest. But Amprite sought to recover a windfall to which it was not
entitled. It may reasonably be inferred from this record that if Amprite had simply requested that the
Contractor pay its actual costs plus 10 percent for the extra work this litigation would not have been
necessary. Under these circumstances, we think it was an abuse of discretion to allow pre-judgement
interest.
Conclusion
In sum, we hold that neither the Contract between the Owner and Contractor nor the
Subcontract between the Contractor and Amprite, was abandoned. We hold that the provision
requiring Change Orders be in writing was waived by the Contractor and Amprite. We hold that all
other portions of the Subcontract are valid and enforceable, particularly the provision which fixes
compensation for extra work at actual cost plus 10 percent. We hold that the internal records of
Amprite, as generated and authenticated, with respect to its actual costs, prevail over the flat or
estimated rates prescribed by Schedule H. We hold that the Contractor was not estopped to insist
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upon proof of actual costs per the Contract. We hold that Amprite failed to prove its entitlement to
additional interest on the retainage.
Our analysis of the Exhibits, particularly 9A, 9B, and 12 reveal that the represented costs
aggregate $897,582.00 as contrasted to actual costs of $483,904.00.5
The internal reports of Amprite are the sole evidence of its costs. No citation of authority
is required for the assertion that it was incumbent upon Amprite to prove its case by a preponderance
of the evidence. We think the proof established that Amprite was entitled to recover $447,164.00,
less an undisputed credit of $264,648.00,6 or $170,084.00. The judgment is accordingly modified
to allow a recovery of $170,084.00. Costs are taxed evenly and the case is remanded for all
appropriate purposes.
___________________________________
WILLIAM H. INMAN, SENIOR JUDGE
5
COP s 99 and 139 , [$26,740.00] were allowed, probab ly inadvertently. The evidence revealed that the work
attributed to these COPs was included in the base Contract and for which Amprite had already been paid. The actual
costs should accordingly be reduced to $447,164.00. We have studied the testimony of the expert witness Miller and
do not agree with Amprite that his calculations of actual costs were $700,309.00
6
The Co ntracto r claims a cred it of $12,45 2.00 for overpayment of interest on retained funds. We cannot
determine fro m the re cord whethe r these numb ers are corre ct any therefor d isallow this claimed credit.
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