Sirrah Enterprises, LLC v. Wunderlich

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
SIRRAH ENTERPRISES, LLC, an Arizona Corporation,
Plaintiff/Counterdefendant/Appellant,
v.
WAYNE and JACQUELINE WUNDERLICH, husband and wife,
Defendants/Counterclaimants/Appellees.
No. 1 CA-CV 15-0058
FILED 6-16-2016
Appeal from the Superior Court in Yavapai County
No. P1300CV20070399
The Honorable David L. Mackey, Judge
AFFIRMED IN PART AND REVERSED IN PART
COUNSEL
Bremer Whyte Brown & O’Meara, Phoenix
By John J. Belanger, Paul O. Mittelstadt
Counsel for Plaintiff/Counterdefendant/Appellant
The Adams Law Firm, PLLC, Prescott
By Jeffrey R. Adams
Counsel for Defendants/Counterclaimants/Appellees
SIRRAH v. WUNDERLICH
Opinion of the Court
OPINION
Judge Randall M. Howe delivered the opinion of the Court, in which
Presiding Judge Kent E. Cattani and Judge Samuel A. Thumma joined.
H O W E, Judge:
¶1 This appeal is based on a construction contract dispute
between Sirrah Enterprises, LLC (“Sirrah”) and Wayne and Jacqueline
Wunderlich (collectively, “the Wunderlichs”). Sirrah succeeded in a jury
trial on a breach of contract claim against the Wunderlichs and was
awarded damages, but the Wunderlichs succeeded on a counterclaim for
breach of the implied warranty of workmanship and habitability and were
awarded much greater damages. The trial court awarded attorneys’ fees to
the Wunderlichs as the prevailing party and denied Sirrah prejudgment
interest on its award. Sirrah appeals from that judgment.
¶2 We hold that the trial court did not err by awarding the
Wunderlichs attorneys’ fees because the implied warranty of workmanship
and habitability was an implied term of the construction contract and the
nature and size of the jury’s award for the breach of that warranty made the
Wunderlichs the prevailing party in the dispute. We also hold, however,
that the trial court erred in denying Sirrah prejudgment interest on its
breach of contract claim because Sirrah timely requested interest and was
entitled to it.
FACTS AND PROCEDURAL HISTORY
¶3 In April 2006, the Wunderlichs contracted with Sirrah, a
licensed contractor, to construct a basement and exterior walls for a house
on the Wunderlichs’ property. Under the contract, the Wunderlichs were to
pay Sirrah the actual cost of construction plus fifteen percent, which at the
time of the contract Sirrah estimated would total $68,582. The contract also
specified that any amounts due to Sirrah “shall accrue interest at the rate of
one and one-half percent per month from the date due until paid.” Finally,
the contract’s attorneys’ fees provision stipulated that “in the event either
party . . . is required to retain the services of an attorney to enforce any term
or provision of this agreement, the prevailing party shall be entitled to and
the losing party shall pay all expenses and costs including reasonable
attorneys’ fees incurred by the prevailing party.”
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SIRRAH v. WUNDERLICH
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¶4 Sirrah began working on the Wunderlichs’ property later that
month, and the Wunderlichs made payments as Sirrah completed the work.
In early December, Sirrah submitted an invoice for $26,908.47, but upon
receiving that invoice, the Wunderlichs objected to the labor and materials
that Sirrah’s concrete subcontractor provided. Sirrah first reduced the
balance owed to $22,259.33 and then to $19,878.49, but the Wunderlichs still
did not pay. In January 2007, Sirrah completed the work and submitted a
final invoice for $8,905.24. Again, the Wunderlichs did not pay.
¶5 Sirrah consequently sued the Wunderlichs, alleging, among
other things, breach of contract for failure to pay and breach of the implied
covenant of good faith and fair dealing for failing to fulfill their contractual
obligations in a timely manner. Sirrah sought actual and compensatory
damages to be proved at trial, “but in no event less than” $28,783.73,
prejudgment interest at the statutory rate of ten percent per annum from
the date the last invoice was issued, and attorneys’ fees and costs pursuant
to the contract and A.R.S. § 12–341.01.
¶6 The Wunderlichs counter-claimed, alleging, among other
things, breach of contract, breach of the contract’s implied warranty of
workmanship and habitability, and breach of the implied covenant of good
faith and fair dealing. Specifically, the Wunderlichs alleged that the walls
Sirrah constructed were out of plumb and not square, that several batches
of grout used on the project were less than 3,000 pounds per square inch as
promised because Sirrah failed to supervise its use, and that Sirrah failed to
follow industry standards and manufacturer requirements for the
construction of the walls by failing to properly seal and support them. The
Wunderlichs sought compensatory damages at an amount to be proved at
trial as well as pre- and post-judgment interest.
¶7 After seven years of discovery and pretrial motions, the
parties tried the case before a jury. The jury found in Sirrah’s favor on its
breach of contract claim against the Wunderlichs, awarding $31,374 in
damages. The jury further found in Sirrah’s favor on the Wunderlichs’
claims for breach of contract and breach of the covenant of good faith and
fair dealing. However, the jury found in the Wunderlichs’ favor on their
claim for breach of the implied warranty of workmanship and habitability,
awarding them $297,782 in damages. Of that award, $214,579 was for the
cost of demolition, repair, and reconstruction of Sirrah’s work.
¶8 The Wunderlichs applied for attorneys’ fees pursuant to
A.R.S. § 12–341.01, arguing that their claim for breach of implied warranty
arose out of contract, and claimed taxable costs pursuant to
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Opinion of the Court
A.R.S. § 12–341. Sirrah objected, arguing that the Wunderlichs could not
seek fees under A.R.S. § 12–341.01 because their contract had an attorneys’
fees provision that took precedence over the statute. Sirrah also contended
that the Wunderlichs could not seek fees under the contract because it
allowed for fees only for successfully enforcing the contract, and the
implied warranty claim was not based on the contract. Sirrah argued that it
was the only party entitled to fees under the contract because it was the
prevailing party on all attempts to enforce the contract.
¶9 The trial court disagreed. It ruled that the warranty of
workmanship and habitability was implied by law in every home
construction contract, so the Wunderlichs were entitled to attorneys’ fees if
they were the “successful party” under A.R.S. § 12–341.01 or the “prevailing
party” under the contract. The court found that although the Wunderlichs
breached the contract by not paying Sirrah, they were nevertheless the
successful and prevailing party “under the totality of the circumstances”
because the Wunderlichs proved—and a representative from Sirrah
admitted—that the work Sirrah contracted to perform fell below standards
in “nearly every aspect of the construction.” The court also found that the
Wunderlichs were the prevailing and successful party because the jury
found in the Wunderlichs’ favor on the implied warranty claim and the
jury’s verdict on that claim was “substantially more” than the jury’s verdict
in Sirrah’s favor on the breach of contract claim. The trial court additionally
awarded the Wunderlichs, as the prevailing party, their taxable costs
pursuant to A.R.S. § 12–341 and the terms of the contract.
¶10 Based on these rulings, the trial court ordered the
Wunderlichs to submit a proposed final judgment. The Wunderlichs did so,
and included in that judgment an award of prejudgment interest owed to
them at the legal rate pursuant to A.R.S. § 44–1201, but not to Sirrah. Sirrah
objected, arguing that it, not the Wunderlichs, was entitled to prejudgment
interest as a matter of right pursuant to the contract. Sirrah attached its own
proposed judgment, which included prejudgment interest on its award
accruing from the date the last invoice was due pursuant to the contract at
a monthly rate of one and one-half percent. The trial court denied Sirrah’s
request for prejudgment interest, stating—without explanation—that the
request was untimely. The trial court also stated that “the amount is not
actually due because of the substantial judgment awarded against the
plaintiff.”
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DISCUSSION
1. Attorneys’ Fees in the Trial Court
¶11 Sirrah argues that the trial court erred by awarding the
Wunderlichs attorneys’ fees pursuant to A.R.S. § 12–341.01 and the contract
because the Wunderlichs did not prevail on any claim to enforce the
contract. We enforce a contractual provision for attorneys’ fees according to
its terms. Geller v. Lesk, 230 Ariz. 624, 627 ¶ 10, 285 P.3d 972, 975 (App. 2012).
Because Sirrah and the Wunderlichs contractually provided for the
recovery of attorneys’ fees here, A.R.S. § 12–341.01 does not apply. See
A.R.S. § 12–341.01(A) (“This section shall in no manner be construed as
altering, prohibiting or restricting present or future contracts . . . that may
provide for attorneys’ fees.”). Accordingly, we review the trial court’s
ruling awarding attorneys’ fees under the contract for an abuse of
discretion, but review the court’s interpretation of the contractual fee
provision de novo as an issue of law. Murphy Farrell Dev., LLLP v. Sourant,
229 Ariz. 124, 133 ¶ 31, 272 P.3d 355, 364 (App. 2012). We will affirm if a
reasonable basis supports the trial court’s ruling. Id. Here, the trial court did
not abuse its discretion in awarding attorneys’ fees to the Wunderlichs
under the contract.
¶12 Sirrah first argues that the Wunderlichs’ claim for breach of
the implied warranty of workmanship and habitability was not an attempt
to “enforce any term or provision” of the contract. In Arizona, a builder
impliedly warrants that the construction will be completed in a
workmanlike manner and that the structure will be habitable. Columbia
Western Corp. v. Vela, 122 Ariz. 28, 33, 592 P.2d 1294, 1299 (App. 1979). This
warranty is imputed “into the contract for the construction . . . of a
residence.” Woodward v. Chirco Const. Co., Inc., 141 Ariz. 514, 516, 687 P.2d
1269, 1271 (1984) (emphasis added). Thus, “a claim for a breach of the
implied warranty of habitability sounds in contract.” Hall v. Read Dev., Inc.,
229 Ariz. 277, 284 ¶ 29, 274 P.3d 1211, 1218 (App. 2012).
¶13 Here, Sirrah entered into a construction contract with the
Wunderlichs explicitly for the construction of a basement and exterior walls
on the Wunderlichs’ property. Upon entering this contract, Sirrah impliedly
warranted that it would complete the construction in a workmanlike
manner and that the basement would be habitable. Accordingly, because
Sirrah and the Wunderlichs had a construction contract into which the law
imputed a warranty of workmanship and habitability, the Wunderlichs’
claim for breach of that warranty enforced a term or provision of the
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contract. The Wunderlichs were therefore eligible for an award of attorneys’
fees under the contract’s attorneys’ fees provision.
¶14 To support its contrary argument, Sirrah cites to this Court’s
holding in Sullivan v. Pulte Home Corp., 231 Ariz. 53, 290 P.3d 446
(App. 2012), affirmed in part and vacated in part on other grounds, 232 Ariz. 344,
306 P.3d 1 (2013), for the proposition that a claim for breach of the implied
warranty of workmanship and habitability does not arise out of or enforce
a contract. But this misconstrues Sullivan. There, the Sullivans were
subsequent homebuyers who had no express or implied-in-fact contract
with the builder. 231 Ariz. at 55 ¶ 3, 290 P.3d at 448. Instead, their claim for
breach of implied warranty of workmanship and habitability was based
solely on a contract implied-in-law. Id. at 62 ¶ 48, 290 P.3d at 455; see also
Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 244, 678 P.2d 427, 429 (1984)
(providing that because the subsequent homebuyers did not have a contract
with the builder, the implied warranty was “imposed by law”). Because
“A.R.S. § 12–341.01(A) applies to actions arising out of express contracts
and implied-in-fact contracts, but not implied-in-law contracts,” the
Sullivans’ claim did not arise out of contract and the prevailing party was
not entitled to attorneys’ fees. Sullivan, 231 Ariz. at 62 ¶ 48, 290 P.3d at 455.
¶15 In contrast, the claim for breach of the implied warranty of
workmanship and habitability in this case was based on the express
construction contract between Sirrah and the Wunderlichs. The implied
warranty attached to that express contract and the Wunderlichs’ claim for
breach of that warranty thus enforced a term or provision of it. See
Woodward, 141 Ariz. at 516, 687 P.2d at 1271 (holding that the six-year
statute of limitations applied because the cause of action for breach of
implied warranty was based on an express contract between the parties); cf.
Barmat v. John & Jane Doe Partners A-D, 155 Ariz. 519, 521, 747 P.2d 1218,
1220 (1987) (stating the breach of an implied covenant in an implied
contract—instead of an express contract—does not necessarily arise out of
contract under A.R.S. § 13–341.01(A)). Because the Wunderlichs’ breach of
implied warranty of workmanship and habitability was based on their
express contract with Sirrah, A.R.S. § 12–341.01(A) applies and attorneys’
fees are appropriate.
¶16 Sirrah further argues that the trial court erred in concluding
that the Wunderlichs were the prevailing party under the contract for
purposes of awarding fees. In deciding which party prevailed under the
terms of a contract when the case involves multiple claims, we apply the
same standard as if we were deciding which party prevailed under A.R.S.
§ 12–341.01. Murphy Farrell, 229 Ariz. at 134 ¶ 36, 272 P.3d at 365 (“We
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Opinion of the Court
discern no reason to apply a different paradigm in deciding which party is
the ‘prevailing party’ under the terms of the Agreement.”). The trial court
has sole discretion to determine which party prevailed and we will not
disturb the trial court’s ruling if any reasonable basis exists to support it.
Schwartz v. Farmers Ins. Co. of Ariz., 166 Ariz. 33, 38, 800 P.2d 20, 25
(App. 1990). Further, in cases involving multiple claims and varied success,
the trial court may apply a “percentage of success” or a “totality of the
litigation test” in determining which party prevailed. Berry v. 352 E.
Virginia, L.L.C., 228 Ariz. 9, 13–14 ¶ 22, 261 P.3d 784, 788–89 (App. 2011).
We defer to the trial court because it is better able to evaluate the parties’
positions during the litigation and to determine which party prevailed.
Id. at 13 ¶ 22, 261 P.3d at 788.
¶17 A reasonable basis supports the trial court’s finding that the
Wunderlichs were the prevailing party under the totality of the litigation
test. The parties made multiple claims regarding Sirrah’s construction of
the basement and exterior walls and the Wunderlichs’ refusal to pay Sirrah
for its work. The trial court stated in its ruling that although the
Wunderlichs breached the contract by failing to make their final payments
to Sirrah, the Wunderlichs had established that Sirrah defectively
constructed the basement and exterior walls that it contracted to build. In
addition, the jury awarded the Wunderlichs $297,782, most of which was
for the cost of demolition, repair, and reconstruction of the work Sirrah had
performed under the contract. While the jury awarded Sirrah $31,374 for
the unpaid balance, this was significantly less than the amount awarded to
the Wunderlichs for the necessary repairs. Based on these circumstances,
the trial court reasonably concluded that the Wunderlichs were the
prevailing party for purposes of awarding fees under the contractual
provision.
¶18 Sirrah counters that it was the prevailing party for purposes
of awarding attorneys’ fees because it prevailed in its breach of contract
claim relating to the Wunderlichs’ unpaid balance and on the Wunderlichs’
counterclaim for breach of contract, while the Wunderlichs prevailed only
on an implied warranty claim. But the Wunderlichs’ claim enforced the
contract and partial success does not preclude a party from prevailing or
the trial court from awarding attorneys’ fees. Berry, 228 Ariz. at 14 ¶ 24,
261 P.3d at 789. Further, although Sirrah received the unpaid balance it
sought and succeeded on other breach of contract claim, the Wunderlichs,
who had refused to pay Sirrah’s invoices due to faulty work, won a larger
monetary judgment to repair and reconstruct Sirrah’s defective
construction. Accordingly, a reasonable basis supports the finding that the
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Opinion of the Court
Wunderlichs were the prevailing party and the trial court did not err in
awarding them attorneys’ fees pursuant to the contract.
2. Prejudgment Interest
¶19 Sirrah next argues that the trial court erred in finding that
Sirrah untimely requested prejudgment interest on the Wunderlichs’
unpaid balance and in denying it that interest. We review the trial court’s
ruling on entitlement to prejudgment interest de novo. John C. Lincoln Hosp.
& Health Corp. v. Maricopa County, 208 Ariz. 532, 545 ¶ 39, 96 P.3d 530, 543
(App. 2004). In Arizona, “[i]nterest on any . . . indebtedness or other
obligation shall be at the rate of ten percent per annum, unless a different
rate is contracted for in writing . . . . Interest on any judgment that is based
on a written contract . . . shall be at the rate provided . . . and specified in
the judgment.” A.R.S. § 44–1201(A). Prejudgment interest is not authorized
for unliquidated amounts. A.R.S. § 44–1201(D)(1). But “a party with a
liquidated claim is entitled to a prejudgment interest as a matter of right.”
Precision Heavy Haul, Inc. v. Trail King Indus., Inc., 224 Ariz. 159, 160 ¶ 4, 228
P.3d 895, 896 (App. 2010). A claim is liquidated if the plaintiff provides a
basis for precisely calculating the amount owed, and the amount of the
claim must be capable of exact calculation on the date of accrual. Scottsdale
Ins. Co. v. Cendejas, 220 Ariz. 281, 288, 289 ¶¶ 33, 37, 205 P.3d 1128, 1135,
1136 (App. 2009).
¶20 The trial court erred in denying Sirrah prejudgment interest
because Sirrah did not act untimely and was entitled to the interest as a
matter of right. Contrary to the trial court’s statement, Sirrah timely
requested prejudgment interest throughout the litigation. Sirrah first
requested interest in its complaint. Later, Sirrah objected to the
Wunderlichs’ proposed final judgment—which awarded prejudgment
interest to the Wunderlichs but not Sirrah—arguing that the contract
entitled Sirrah to prejudgment interest as a matter of right. Additionally,
Sirrah attached to its objection its own proposed final judgment, which
included a provision granting it prejudgment interest pursuant to the
contract. Nothing in the contract or authorities the parties otherwise cite
required that Sirrah request prejudgment interest within a certain time or
that any other conditions be met for Sirrah to seek prejudgment interest.
¶21 Further, not only had Sirrah requested prejudgment interest
on the unpaid balance throughout the litigation, but Sirrah was entitled to
that interest pursuant to the contract as a matter of right. Sirrah and the
Wunderlichs included in their contract a provision requiring that interest
accrue on indebtedness owed to Sirrah at a monthly rate of one and one-
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Opinion of the Court
half percent. The jury found that the Wunderlichs owed Sirrah a sum of
$31,374 for their breach of contract. This sum the Wunderlichs owed was an
indebtedness for which interest “shall be at the rate . . . provided in the
agreement and specified in the judgment.” A.R.S. § 44–1201(A); see also
Democratic Party of Pima Cty. v. Ford, 228 Ariz. 545, 548 ¶ 9, 269 P.3d 721, 724
(App. 2012) (providing that the use of “shall” indicates a mandatory
provision). Although prejudgment interest typically accrues from the date
of default on the payment, in this case the amount owed was not capable of
exact calculation until June 6, 2014—the date of the jury’s verdict.
¶22 The Wunderlichs argue, however, that this amount is not
liquidated because the verdict was not itemized. But itemization is not
necessary, as long as the plaintiff provides a basis for precisely calculating
the amount owed. Berry, 228 Ariz. at 13 ¶ 19, 261 P.3d at 788. Because Sirrah
submitted the invoices of the amounts due and the verdict identifies the
precise amount the Wunderlichs owed Sirrah, the verdict effectively
liquidated the amount owed. The Wunderlichs’ argument that Sirrah’s
claim was not liquidated is thus unavailing.
¶23 The Wunderlichs counter that Sirrah waived its argument for
prejudgment interest on appeal by failing to request a jury instruction on
contract interest, move to set aside the jury’s verdict, or move for a new
trial. But the Wunderlichs have not shown that the issue was one for the
jury to decide and Sirrah has not waived the argument for appeal. Sirrah
objected to the Wunderlichs’ proposed final judgment that did not grant
Sirrah prejudgment interest. Cf. Ruck Corp. v. Woudenerg, 125 Ariz. 519,
522–23, 611 P.2d 106, 109–10 (App. 1980) (providing that a failure to object
in the trial court constitutes a waiver on appeal). Moreover, given that the
trial court denied Sirrah’s request for prejudgment interest, it cannot be said
that Sirrah requests prejudgment interest for the first time on appeal. Thus,
the trial court erred by denying Sirrah prejudgment interest at a rate of one
and one-half percent. Accordingly, although the Wunderlichs’ award was
substantially larger than Sirrah’s, Sirrah was entitled to prejudgment
interest on its $31,374 award at the contractual monthly rate of one and one-
half percent from June 6, 2014, when the amount was liquidated by the
jury’s verdict. We reverse the trial court’s conclusion regarding Sirrah’s
entitlement to prejudgment interest.1
1 We note that the trial court also denied the Wunderlichs an award of
prejudgment interest, but the Wunderlichs do not appeal that issue.
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3. Attorneys’ Fees on Appeal
¶24 Sirrah requests attorneys’ fees on appeal pursuant to
A.R.S. § 12–341.01 and requests its taxable costs and expenses pursuant to
the terms of the contract. The Wunderlichs request attorneys’ fees pursuant
to A.R.S. § 12–341.01. We deny Sirrah’s request because, although it
succeeded on the prejudgment interest issue, it is not the overall prevailing
party on appeal because its award for prejudgment interest is substantially
smaller than the award of attorney’s fees upheld from the trial court. We
award the Wunderlichs reasonable attorneys’ fees and costs on appeal upon
compliance with Arizona Rule of Civil Appellate Procedure 21(a) because
they are the prevailing party on appeal.
CONCLUSION
¶25 We affirm the trial court’s order awarding the Wunderlichs
attorneys’ fees as the prevailing party under the terms of the contract, but
reverse the trial court’s order denying prejudgment interest to Sirrah at the
monthly rate of one and one-half percent pursuant to the contract.
:AA
10