Walton General Contractors, Inc. v. Chicago Forming, Inc.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-1028
___________
Walton General Contractors, *
Inc./Malco Steel, Inc., *
*
Appellant, *
*
v. *
*
Chicago Forming, Inc.; *
Peerless Insurance Company, *
*
Appellees. *
_______________________________
Chicago Forming, Inc., *
*
Third Party Plaintiff, * Appeals and Cross-Appeals
* from the United States
v. * District Court for the
* Western District of Missouri.
United States Fidelity and *
Guaranty Company, *
*
Third Party Defendant. *
___________
No. 96-1324
___________
Walton General Contractors, *
Inc./Malco Steel, Inc., *
*
Appellee, *
*
v. *
*
Chicago Forming, Inc.; *
*
Appellant, *
*
Peerless Insurance Company, *
*
Appellee. *
_____________________________
Chicago Forming, Inc., *
*
Third Party Plaintiff-Appellant,*
*
v. *
*
United States Fidelity and *
Guaranty Company, *
*
Third Party Defendant-Appellee. *
___________
No. 96-1326
___________
Walton General Contractors, *
Inc./Malco Steel, Inc., *
*
Appellee, *
*
v. *
*
Chicago Forming, Inc., *
*
Appellee, *
*
Peerless Insurance Company, *
*
Appellant. *
_______________________________
Chicago Forming, Inc., *
*
Third Party Plaintiff,*
*
v. *
*
United States Fidelity and *
Guaranty Company, *
*
Third Party Defendant.*
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___________
Submitted: December 9, 1996
Filed: April 22, 1997
___________
Before WOLLMAN, BRIGHT and MURPHY, Circuit Judges.
___________
BRIGHT, Circuit Judge.
These appeals bring to this court a dispute between a contractor
(Walton General Contractors, Inc./Malco Steel, Inc.), its subcontractor
(Chicago Forming, Inc.), and the subcontractor’s surety (Peerless Insurance
Company). Initially, the contractor claimed that the subcontractor’s
delayed and defective performance caused the general contractor damages in
excess of the agreed amount remaining due and owing under the subcontract,
$352,408. The contractor sought a declaratory judgment determining its
proper withholding under the subcontract and joined the subcontractor’s
surety because the contractor’s claim exceeded the unpaid balance of the
subcontract. Subsequently, the subcontractor filed a counterclaim for the
full subcontract balance of $352,408.
A magistrate judge presided over the jury trial, resolved the post-
trial motions and entered judgments regarding the controversy. The
magistrate made the following awards:
1. According to the jury’s findings, the subcontract entitled the
contractor to withhold $233,629 for damages resulting from the
subcontractor’s delayed and defective performance. This award was less
than the contractor initially claimed as damages.
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2. According to the jury’s findings, the subcontractor substantially
performed the subcontract and, therefore, was entitled to the full $352,408
subcontract balance subject to the contractor’s damages withholding
discussed in item 1 above. The magistrate judge, therefore, ordered the
contractor to pay the $118,779 difference between the two awards.
3. The magistrate judge granted the subcontractor prejudgment
interest on $352,408 calculated from May 7, 1993, when the subcontractor
demanded payment.
4. Although the subcontract included a provision entitling the
prevailing party to attorneys’ fees, the magistrate judge denied both the
contractor’s and the subcontractor’s motions for attorneys’ fees.
5. The magistrate judge dismissed the subcontractor’s surety from
the damages portion of the trial because the contractor reduced its damages
claim below the subcontract balance of $352,408 shortly before trial, but
retained jurisdiction over the surety for purposes of determining
attorneys’ fees. After the trial, the magistrate judge awarded the surety
$148,726.24 in attorneys’ fees against the subcontractor pursuant to their
performance bond.
The parties appealed from the judgments and awards, and raise the
following issues for our review:
1. The contractor claims that the subcontractor was not entitled to
credit for excusable delays during the subcontract performance and,
consequently, the magistrate judge erred by admitting the subcontractor’s
evidence of excusable delays. We reject the contractor’s argument because
the contractor introduced
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evidence that the subcontractor caused the delays and, thereby, opened the
door for the subcontractor to submit rebuttal evidence.
2. The contractor claims that the magistrate judge erred by
instructing the jury on the issue of substantial performance on the
subcontractor’s counterclaim. The contractor contends that the
subcontractor offered insufficient evidence of substantial performance to
warrant the instruction. In addition, the contractor asserts that the
instructions failed to inform the jury that the subcontractor could not
substantially perform with respect to the subcontract’s provisions
requiring the subcontractor to provide a ten-day notice of excusable
delays. We reject both of these arguments and affirm the magistrate
judge’s choice and form of jury instructions.
3. The contractor claims the subcontract entitled the contractor to
judgment as a matter of law against the subcontractor on the counterclaim
because the subcontract authorized the contractor to withhold funds, even
excessive amounts, without breaching the terms of the subcontract. We
reject this claim. The parties’ pleadings and presentation of evidence
required the jury’s determination on the appropriateness of the
contractor’s withholding of payment and the amount to which the contractor
could withhold.
4. The contractor disputes the award of prejudgment interest granted
to the subcontractor. We agree that the magistrate judge erroneously
granted prejudgment interest to the subcontractor for the full amount of
the subcontract balance without offsetting the contractor’s damages.
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5. The contractor and subcontractor appeal the magistrate judge’s
denial of their motions for attorneys’ fees pursuant to the subcontract.
We agree with the magistrate judge’s decision because both parties breached
the subcontract and, therefore, the subcontract entitled neither party to
recover attorneys’ fees.
6. The subcontractor claims that the magistrate judge erred by
granting the surety attorneys’ fees without determining whether the fees
were reasonable. We reject this claim because the subcontractor fails to
demonstrate that the magistrate judge abused his discretion.
7. The surety argues that the contractor, rather than the
subcontractor, bears the liability for the surety’s attorneys’ fees
according to the subcontract and because the contractor brought its claim
against the surety in bad faith. We conclude that the subcontract creates
no obligation on the part of the contractor to reimburse the surety for its
litigation costs and that the contractor brought its claim in good faith.
Accordingly, we reject both of the surety’s arguments.
8. The surety claims that its performance bond agreement with the
subcontractor entitles the surety to reimbursement of $20,000 it paid to
settle a claim against the subcontractor by one of its suppliers. The
contractor also claims that the subcontract entitles it to withhold $30,010
until the subcontractor provides the requisite waiver from the supplier of
its claim. We remand both of these claims to the magistrate judge because
the parties never raised them appropriately below. The facts appear to be
undisputed.
Our discussion of each of these issues follows.
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I. BACKGROUND
In 1992, Kansas City, Missouri entered into a construction contract
with the contractor to build a convention center expansion. The contractor
then entered into a subcontract with the subcontractor for $1,560,000 to
build four cement pylons used to support the roof of the convention center.
The subcontract required the subcontractor to obtain a surety to issue a
bond in the contractor’s favor guaranteeing the subcontractor’s performance
and payment of its suppliers. The performance bond between the
subcontractor and surety incorporated the subcontract.
During the construction project, the contractor believed the
subcontractor performed defective and untimely work. The contractor,
therefore, began withholding payments from the subcontractor and at the
time of trial, $352,408 of the subcontract remained unpaid. The contractor
claimed it withheld $49,297 as retainage1 because the subcontractor had
work to complete, defects in the subcontractor’s work placed the contractor
at risk of further liability, and Kansas City had not accepted the work or
paid the contractor. The subcontract authorized the contractor to withhold
as much as ten percent retainage from each progress payment.
In addition to retainage, the contractor withheld $30,010 allegedly
to protect itself from a potential claim for payment by one of the
subcontractor’s suppliers (Continental Steel & Conveyor Company). The
contractor believed the subcontractor did not pay the supplier. The
subcontract authorized the contractor to
1
Retention is money withheld from payment until completion
and acceptance of a construction project to insure that the
subcontractor completes its work.
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withhold payment until the subcontractor demonstrated that it paid all of
its suppliers. Sometime after the trial, the subcontractor’s surety paid
the supplier $20,000 in settlement of its claim against the subcontractor.
Finally, the contractor claimed it withheld $319,398 as compensation
for damages resulting from the subcontractor’s breach of the subcontract.
The contractor claimed the following amounts as damages: $151,102 due to
the subcontractor’s deficient work, $45,624 caused by the subcontractor’s
failure to perform work according to specifications, $51,087 of additional
overtime costs, and $60,094 resulting from the subcontractor’s failure to
perform in a timely manner. Thus, the contractor claimed the subcontract
entitled it to withhold the entire $352,408 subcontract balance as
retainage, security for the supplier’s claim and compensation for damages.
The contractor brought this diversity action against the
subcontractor and its surety, seeking a declaratory judgment that the
subcontractor breached the subcontract, thereby entitling the contractor
to $352,408 in damages. This sum represents the full extent of the unpaid
balance on the subcontract. The contractor also sought attorneys’ fees
from the subcontractor and the surety pursuant to the subcontract. The
subcontractor filed a counterclaim against the contractor for payment of
the $352,408 subcontract balance, additional damages and attorneys’ fees.
Finally, the surety filed a cross-claim against the subcontractor for
attorneys’ fees pursuant to the performance bond agreement and a
counterclaim against the contractor for any of the subcontractor’s rights
under the performance bond or the subcontract. All the parties agreed to
have a magistrate judge preside over the litigation.
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The subcontractor completed its portion of the construction by the
time of trial, but the parties disputed the quality of the work. The
convention center construction as a whole, however, was not complete.
Shortly before trial, the contractor reduced its claim for damages from
$352,408 to $319,907. Because the contractor claimed damages in an amount
less than the remaining subcontract balance, the magistrate judge dismissed
the surety from the liability portion of the lawsuit. The magistrate
judge, however, retained jurisdiction over the surety for purposes of
assigning liability for costs, attorneys’ fees and expenses. In addition,
the magistrate judge limited the subcontractor’s damages to the $352,408
remaining under the subcontract or less. Finally, the parties agreed to
submit the issue of attorneys’ fees to the magistrate judge’s discretion.
The jury returned one verdict in favor of the contractor on its claim
against the subcontractor for $233,629 in damages caused by delays and
defects in the subcontractor’s work. The jury returned another verdict for
the subcontractor on its claim for payment against the contractor in the
amount of $352,408. This sum represented the undisputed amount remaining
unpaid under the subcontract. The magistrate judge also awarded the
subcontractor prejudgment interest on the entire $352,408 subcontract
balance. The contractor filed motions for judgment as a matter of law and
for a new trial, but the magistrate judge denied both motions.
The subcontract entitled the “prevailing party” to recover attorneys’
fees, costs and expenses. The contractor sought $232,458.50 in attorneys’
fees and $6,718.58 in expenses from the subcontractor and the surety.
Likewise, the subcontractor sought approximately $155,000 in attorneys’
fees and expenses from the contractor. The magistrate judge denied both
parties’ motions for
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attorneys’ fees, but awarded the surety $148,726 in attorneys’ fees against
the subcontractor.2
II. DISCUSSION
This diversity case raises several issues that require us to apply
Missouri’s substantive law “as we think the highest court of Missouri
would.” See Havens Steel Co. v. Randolph Eng’g Co., 813 F.2d 186, 188 (8th
Cir. 1987). We review the magistrate judge’s determination of state law
and the application of that law to the facts de novo. Salve Regina College
v. Russell, 499 U.S. 225, 231 (1991).
A. Evidentiary Issues
The subcontractor failed to timely complete its work, but introduced
evidence that certain delays were excusable because of bad weather. The
contractor contends that the magistrate judge erroneously admitted the
evidence. According to the subcontract, “Any claims by Subcontractor for
an extension of time to complete the Work must be submitted in writing for
General Contractor’s consideration not more than ten (10) calendar days
after commencement of the alleged cause of the delay or it will be forever
waived.” Appellant App. at 516 (containing subcontract). The contractor
contends that state courts strictly enforce contract provisions requiring
notice even if such enforcement seems unconscionable. Walton Br. at 22-23
(citing Southwest Eng’g Co. v. Reorganized Sch. Dist. R-9, 434 S.W.2d 743,
750 (Mo. Ct. App. 1968)); see also Steinberg v. Fleischer, 706 S.W.2d 901,
904-05
2
The amount of time spent on this case reflected in the
attorneys’ fees demonstrates that this controversy was one for
compromise and settlement rather than litigation.
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(Mo. Ct. App. 1986). Thus, the contractor contends that the
subcontractor’s failure to provide written notice of excusable delay
combined with its failure to timely complete its work rendered the
subcontractor’s performance not excusable under the subcontract. The
contractor, therefore, claims that the subcontractor’s evidence of
excusable delays was irrelevant and prejudicial.
We review a magistrate judge’s decision to admit evidence for abuse
of discretion. Lamb Eng’g & Constr. v. Nebraska Pub. Power Dist., 103 F.3d
1422, 1432 (8th Cir. 1997). “Furthermore, we will not disturb a jury’s
verdict ‘absent a showing that the evidence was so prejudicial as to
require a new trial which would be likely to produce a different result.’”
Id. (quoting O’Dell v. Hercules, Inc., 904 F.2d 1194, 1200 (8th Cir.
1990)); see also Fed. R. Evid. 403.
According to the magistrate judge, the evidence of excusable delays
remained relevant “not necessarily to liability[,] but rather to the jury’s
determination of the amount of [the contractor’s] damages and the amount
of those damages legally attributable to [the subcontractor].” Appellant
App. at 179 (Jan. 31, 1995 Dist. Ct. Order). In addition, the magistrate
judge admitted the evidence because the contractor offered testimony
alleging that it claimed damages for delays caused by the subcontractor,
see Tr. Vol. VI at 71-76, and thereby opened the door for the subcontractor
to offer rebuttal evidence. Appellant App. at 179 (Jan. 31, 1995 Dist. Ct.
Order). Finally, the magistrate judge determined that the contractor
suffered no harm from the evidence because “the jury unquestionably awarded
[the contractor] the damages for delays assigned to [the subcontractor] by
[the contractor].” Id.
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We agree with the magistrate judge. The contractor offered testimony
that it calculated its claim for damages due to delay of performance based
on delays caused by the subcontractor. See Tr. Vol. VI at 71-76. By
offering evidence that the subcontractor caused certain delays, the
contractor opened the door for the subcontractor to offer rebuttal
evidence. Although the rebuttal evidence failed to excuse the delays, it
challenged the credibility of the contractor’s calculations. Cf. United
States for and on behalf of Cannon Air Corp. v. National Homes, 581 F.2d
157, 163 (8th Cir. 1978) (concluding that district court did not abuse its
discretion by admitting rebuttal evidence that would otherwise appear
prejudicial). Accordingly, the magistrate judge did not abuse its
discretion by admitting the subcontractor’s evidence of weather delays.
B. Jury Instructions
The contractor also challenges the magistrate judge’s jury
instructions to render a verdict in the subcontractor’s favor on its
counterclaim if the subcontractor substantially performed under the
contract. See Appellant App. at 508 (Jury Instruction No. 9). The
contractor argues that, as a matter of law, the subcontractor’s performance
was insufficient to support its claim. The contractor also argues that the
magistrate judge failed to instruct the jury that certain provisions of the
subcontract, such as the notice provisions discussed in Part A, required
complete performance.
The form of the jury instructions is a procedural matter governed by
federal law. H.H. Robertson Co. v. V.S. DiCarlo Gen. Contractors, 950 F.2d
572, 576 (8th Cir. 1991). A federal court exercising its diversity
jurisdiction is not required to give the precise instruction set out in the
Missouri Approved Instructions
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(MAI) but, rather, retains broad discretion to instruct the jury so long
as the form and language of the instructions provide a fair and adequate
presentation of the state law. Id. Thus, “We will not reverse for
instructional error unless the instruction, read as a whole, failed to
fairly and adequately present the relevant state law.” Id. at 577.
We believe the subcontractor offered sufficient evidence that it
substantially performed under the contract to warrant the magistrate
judge’s instruction. The subcontractor introduced evidence that the four
cement pylons, the subject of the subcontract, were complete and adequate
for their intended purpose despite alleged defects. See Tr. Vol. VII at
193-94 (including testimony that concrete pylons contain no structural
problems although potential for maintenance problems exists). In addition,
although a federal court is not bound to instruct the jury with state
instructions, the magistrate judge chose to use MAI 26.07. The Committee
Comment to MAI 26.07 advises courts to use that instruction “where recovery
is sought on a building contract,” and state law regards the instruction
as particularly appropriate in construction contract disputes because “it
is highly unusual for a project to be completed in exact accordance with
the original plans and specifications.” See Lindsey Masonry Co. v. Jenkins
& Assoc., 897 S.W.2d 6, 13 (Mo. Ct. App. 1995). The magistrate judge’s use
of the state’s instruction fairly and adequately presented the relevant
state law to the jury. Thus, we conclude that the magistrate judge did not
err in its decision to submit the substantial performance instruction or
in the form of the instruction.
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C. Judgment as a Matter of Law
The contractor next argues that the magistrate judge erroneously
denied the contractor’s motion for judgment as a matter of law on the
subcontractor’s counterclaim.3 According to the contractor, the
subcontract’s unambiguous language entitled the contractor to withhold the
subcontractor’s payment and, therefore, the contractor never breached the
subcontract. Specifically, the contractor contends that the award of
almost $234,000 in damages, the supplier’s $30,000 claim for payment and
the subcontract’s authorization of retainage demonstrate that the
contractor acted within its contractual rights and, therefore, did not
breach the contract as a matter of law.
We review de novo the magistrate judge’s decision to deny the
contractor’s motion for judgment as a matter of law. See Lamb Eng’g &
Constr. Co., 103 F.3d at 1430. “A court should not set aside a jury’s
verdict lightly . . . .” Nicks v. Missouri, 67 F.3d 699, 704 (8th Cir.
1995). A court should grant a motion for judgment as a matter of law if
“the nonmoving party has presented insufficient evidence to support a jury
verdict in [its] favor, and this is judged by viewing the evidence in the
light most favorable to the nonmoving party and giving [it] the benefit of
all reasonable inferences from the evidence, but without assessing
credibility.” Abbott v. City of Crocker, 30 F.3d 994, 997 (8th Cir. 1994)
(citation omitted). Furthermore, we review the magistrate judge’s decision
to deny judgment as a matter of law
3
The contractor properly motioned for judgment as a matter
of law at the close of the evidence pursuant to Fed. R. Civ. P.
50(a), see Tr. Vol. X at 43, and renewed its motion after the
jury returned its verdict pursuant to Fed. R. Civ. P. 50(b). See
Appellant App. at 177 (Jan. 31, 1995 Dist. Ct. Order).
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with deference to the jury’s verdict. See Mears v. Nationwide Mut. Ins.
Co., 91 F.3d 1118, 1121 (8th Cir. 1996).
After reviewing the record, we agree with the magistrate judge’s
conclusion that “the jury was presented with sufficient evidence to support
a verdict for both plaintiff and defendant on their respective claims.”
Appellant App. at 178 (Jan. 31, 1995 Dist. Ct. Order). The subcontractor
offered sufficient evidence, when viewed in the light most favorable to the
subcontractor, that the contractor breached its obligation to pay amounts
due under the subcontract. The contractor admitted it withheld $352,408,
despite claiming only $319,907 in damages. Furthermore, the subcontractor
introduced evidence that it completed the four cement pylons without
significant structural problems. See Tr. Vol. VII at 193-94.
Thus, the evidence demonstrated that the subcontractor substantially
performed its contractual obligations, and that the contractor breached its
contractual obligation to pay amounts owed to the subcontractor.
Accordingly, we affirm the magistrate judge’s denial of the contractor’s
motion for judgment as a matter of law.
D. Prejudgment Interest
The contractor contends that the magistrate judge erroneously awarded
the subcontractor prejudgment interest based on the entire $352,408
subcontract balance. State law provides that “[c]reditors shall be allowed
to receive interest at the rate of nine percent per annum . . . for all
moneys after they become due and payable, on written contracts.” Mo. Rev.
Stat. § 408.020 (1979). The magistrate judge ordered the contractor to pay
prejudgment interest
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on the subcontractor’s $352,408 award commencing on May 7, 1993, which is
thirty days after the subcontractor demanded payment. See Appellant App.
at 189 (Dec. 5, 1995 Dist. Ct. Judgment), and decided not to offset the
contractor’s damages when calculating the subcontractor’s prejudgment
interest because “[a]n offset . . . would have the practical effect of
awarding prejudgment [interest] on the [contractor’s] award.” Appellant
App. at 191 (Nov. 27, 1995 Dist. Ct. Order).
The contractor argues that the subcontractor was not entitled to any
prejudgment interest because the amount due to the subcontractor was not
fixed or ascertainable until the jury determined the extent of the
contractor’s damages. In the alternative, the contractor argues that the
magistrate judge erred by calculating prejudgment interest based on the
subcontractor’s entire award without first offsetting the contractor’s
$233,629 in damages. According to the contractor, the subcontract never
entitled the subcontractor to receive $233,629 and, therefore, the
magistrate judge should not award prejudgment interest for amounts that
never became due under the subcontract.
State law governs issues of prejudgment interest. Total Petroleum,
Inc. v. Davis, 822 F.2d 734, 738 (8th Cir. 1987) (citing California &
Hawaiian Sugar Co. v. Kansas City Terminal Warehouse Co. Inc., 788 F.2d
1331, 1333 (8th Cir. 1986)). Missouri provides for prejudgment interest
only if “the trial court finds the amount indisputably due under the
contract. In order to be liquidated as to bear interest a claim must be
fixed and determined or readily determinable . . . .” Mel-Lo Enters., Inc.
v. Belle Starr Saloon, Inc., 716 S.W.2d 828, 829-30 (Mo. Ct. App. 1986)
(citations omitted). Missouri courts consider a claim liquidated when the
parties fix the amount due by agreement. Huffstutter v. Michigan
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Mut. Ins. Co., 778 S.W.2d 391, 394-95 (Mo. Ct. App. 1989). “It is also
well settled under Missouri law that the fact that a defendant interposes
counterclaims, setoffs, recoupment, or defenses does not alter the fact
that the amount claimed by the plaintiff is ‘ascertainable,’ even though
the amount of the defendant’s counterclaim, setoff, or recoupment may not
itself be reasonably ascertainable.” St. Joseph Light & Power Co. v.
Zurich Ins. Co., 698 F.2d 1351, 1356 (8th Cir. 1983); see also Huffstutter,
778 S.W.2d at 395 (“The existence of a bona fide dispute as to the amount
owed does not preclude recovery of interest.” (citation omitted)).
The jury’s award reflected a fixed and determined amount because both
parties agreed that $352,408 remained unpaid under the subcontract.
Although the contractor raised a bona fide dispute as to the amount due in
light of the subcontractor’s defective performance, that dispute fails to
preclude the subcontractor’s recovery of prejudgment interest subject to
any offset.
The contractor, however, properly contests the amount of prejudgment
interest awarded by the magistrate judge. According to this court’s recent
decision in Gateway Western Ry. Co. v. Morrison Metalweld Process Corp.,
46 F.3d 860 (8th Cir. 1995), “[I]n computing prejudgment interest, a
judgment for amounts due under a contract must be reduced by the other
party’s offsetting recovery under a counterclaim for breach of the same
contract, including any recovery of consequential or special damages.” Id.
at 864 (emphasis added) (discussing Herbert & Brooner Constr. Co. v.
Golden, 499 S.W.2d 541 (Mo. Ct. App. 1973)); see also Solter v. P.M. Place
Stores, Co., 748 S.W.2d 919, 922 (Mo. Ct. App. 1988) (“[T]he existence of
a setoff or counterclaim will not prevent the recovery of interest on the
balance of the demand . . . .”
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(emphasis in original)). Although the Missouri Supreme Court has not
addressed the issue, we believe it would follow this rule. See Gateway
Western Ry. Co., 46 F.3d at 864. Accordingly, we reverse and remand to the
magistrate judge with instructions to enter an award of prejudgment
interest in favor of the subcontractor based on the $118,779 difference
between the subcontractor’s award and the contractor’s damages, less
properly withheld retainage of $35,240.80.4
E. Prevailing Party
The contractor and the subcontractor both argue that the magistrate
judge erred by failing to award attorneys’ fees. According to the
subcontract, “If any party to this Agreement is required to seek the
services of an attorney to enforce any provisions of this Agreement, the
prevailing party shall be entitled to recover its costs, expenses and
reasonable attorneys’ fees incurred . . . .” Appellant App. at 516. The
magistrate judge, however, declined “to find either party a ‘prevailing
party’ and enforce an attorneys’ fee clause in the contract both parties
saw fit to breach.” Appellant App. at 183 (Jan. 31, 1995 Dist. Ct. Order).
On appeal, the contractor argues that it prevailed on the
“significant” issues of the litigation because the jury determined that the
subcontractor breached the subcontract and awarded the
4
See supra at 7 (discussing subcontract provision regarding
retainage). No prejudgment interest is due on ten percent of the
final payment which can be withheld until Kansas City accepts the
contractor’s performance. Accordingly, the magistrate judge
shall determine any prejudgment interest on retention as of the
date Kansas City accepted the project, rather than the date the
subcontractor demanded payment.
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contractor the greater share of the subcontract balance in damages. On
cross-appeal, the subcontractor contends that Missouri law favors a “net
judgment rule.” CFI Br. at 11 (citing Solter, 748 S.W.2d at 923). Because
the jury awarded the contractor $233,629 and the subcontractor $352,408,
the magistrate judge entered a net judgment in the subcontractor’s favor
for $118,779. The subcontractor argues that this favorable net judgment
demonstrates that it prevailed at trial and, therefore, is entitled to
attorneys’ fees.
We agree with the magistrate judge’s conclusion that the parties
intended the attorneys’ fees provision of the subcontract to provide an
additional remedy for a nonbreaching party. Both parties, however,
breached the subcontract. Thus, we affirm the magistrate judge’s decision
to deny the requests for attorneys’ fees.
F. Reasonableness of Attorneys’ Fees Awarded
On cross-appeal, the subcontractor challenges the magistrate judge’s
award of attorneys’ fees to the surety pursuant to the performance bond.
The subcontractor made no objections to the amount of the surety’s
attorneys’ fees before the magistrate judge, see generally Dist. Ct. Doc.,
but now contends that the magistrate judge failed to determine the
reasonableness of the surety’s attorneys’ fees. We review the magistrate
judge’s decision to award attorneys’ fees for abuse of discretion and its
factual findings control unless they are clearly erroneous. See Pinkham
v. Camex, Inc., 84 F.3d 292, 294 (8th Cir. 1996). “The amount of an award
of attorney’s fees rests within the sound discretion of the court and we
will not disturb it absent clear abuse of that discretion.” Litton
Microwave Cooking Products v. Leviton Mfg.
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Co., 15 F.3d 790, 796 (8th Cir. 1994). Assuming, arguendo, that the
subcontractor preserved its objection to the amount of the surety’s
attorneys’ fees, it failed to demonstrate that the magistrate judge abused
his discretion. Thus, we affirm the magistrate judge’s award of attorneys’
fees in favor of the surety.
G. Liability for Payment of Attorneys’ Fees Under Performance Bond
On cross-appeal the surety argues that it constituted a prevailing
party under the subcontract as incorporated by the surety bond and,
therefore, liability for its attorneys’ fees falls on the contractor
instead of the subcontractor. In the alternative, the surety argues that
the magistrate judge mistakenly refused to award the surety attorneys’ fees
against the contractor because the contractor brought its claim against the
surety in bad faith. We reject both of these arguments.
The contractor was not a party to the performance bond entered
between the subcontractor and the surety and, therefore, owed no
contractual obligation under the bond to the surety. Although the surety’s
obligations under the bond run toward the contractor, the reverse is not
true. Essentially, the subcontractor paid the surety to guarantee the
contractor that the subcontractor would perform. Although the
subcontractor and surety decided to incorporate the subcontract, that
decision did not affect the rights of the contractor or any other non-party
to the bond.
In addition, we disagree with the surety’s assertion that the
contractor brought its claim in bad faith. Although the magistrate judge
appropriately granted the surety judgment as a matter of law on the
contractor’s claim for damages because the contractor’s
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claim failed to exceed the amount the contractor withheld from the
subcontractor, see Appellant App. at 177 (Jan. 31, 1995 Dist. Ct. Order),
the magistrate judge retained jurisdiction over the surety for purposes of
determining liability for attorneys’ fees. See Peerless Br. at 10. As a
result, although the contractor failed to raise a claim for damages against
the surety, the contractor’s claim for attorneys’ fees was reasonable and
not in bad faith. Accordingly, we affirm the magistrate judge’s decision
to order the subcontractor, rather than the contractor, to pay the surety’s
attorneys’ fees.
H. Indemnity Rights of Surety
Finally, the surety requests that this court increase its judgment
against the subcontractor to compensate the surety for paying the supplier
$20,000 to settle the supplier’s claim against the subcontractor. The
surety claims that its performance bond with the subcontractor entitles the
surety to reimbursement. The subcontractor admits that the surety, on
behalf of the subcontractor, settled the supplier’s claim for $20,000, CFI
Br. at 6; CFI Reply Br. at 10, but the parties never provided the
magistrate judge with an opportunity to rule on this issue. Accordingly,
we remand this issue for further proceedings in accordance with the
seemingly undisputed facts presented by the parties.
In addition, the contractor argues that the subcontract entitles the
contractor to withhold $30,010 from the subcontractor’s judgment as
security until the subcontractor provides an unconditional waiver or
release of lien by the supplier. See Appellant’s App. at 516. The court
record, however, appears to contain such a release of the supplier’s claim
against
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the contractor. See Appellee Chicago Forming App. at 26. Because the
contractor’s claim appears to question whether the surety settled the
supplier’s claim, we refer the matter to the magistrate judge to resolve
in conjunction with the surety’s claim for indemnification.
III. CONCLUSION
For the above-mentioned reasons, we affirm in part, reverse in part
and remand the case to the magistrate judge for further proceedings in
accordance with this opinion.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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