Fletcher Hill, Inc. v. Crosbie

Skoglund, J.

¶ 1. This action arises out of the construction of a modular home by plaintiff Fletcher Hill, Inc. for defendant Susan Crosbie. Fletcher Hill appeals (1) the trial court’s denial of its request for attorney’s fees, and (2) the court’s determination of the rate of prejudgment interest. We affirm.

¶ 2. Crosbie entered into a construction contract with Fletcher Hill for construction and installation of her modular home. The contract contains a “late fee” provision which states that “[a]ll outstanding balances over 30 days due from date of invoice will be charged 2% per month interest plus attorney’s fees.” Disputes arose during the course of construction, and ultimately Crosbie refused to pay Fletcher Hill the amount due on the final invoice. Fletcher Hill filed a mechanic’s lien against Crosbie’s property, and then filed suit for breach of contract. Crosbie counterclaimed, alleging that Fletcher Hill breached the contract because it did not complete the installation in a workmanlike manner. She further claimed that Fletcher Hill breached the contract by not paying its subcontractors, thereby subjecting her property to a lien filed by a subcontractor. Indeed, after filing a contractor’s lien on the property, the complaining subcontractor obtained a judgment for $3500 against Fletcher Hill and then served Crosbie with a trustee process for that judgment.

¶ 3. At trial, the jury found that Crosbie breached the contract by failing to pay the final invoice and awarded Fletcher Hill $15,067. The jury also found that Fletcher Hill breached the contract by failing to perform in a workmanlike manner and awarded Crosbie $4000 for “sums spent to remedy any defects or omissions.” At a subsequent hearing to determine attorney’s fees and prejudgment interest, the trial court refused to award either party attorney’s fees, and awarded Fletcher Hill prejudgment interest at the statutory rate of 12% per year from the date the suit was filed. Fletcher Hill appealed. We review the trial court’s ruling on attorney’s fees and prejudgment interest for abuse of discretion. Young v. N. Terminals, Inc., 132 Vt. 125,130,315 A.2d 469,472 (1974).

¶ 4. The court denied the parties’ requests for attorney’s fees for two reasons. First, the court held that “to base an award of attorneys fees on a contract which the plaintiff violated would be contrary to law.” In short, the court held that Fletcher Hill could not collect fees under a contract that the jury found it had breached. Second, the court ruled that under 9 V.S.A. § 4007(c) neither party had substantially prevailed, so each party had to pay its own attorney’s fees.

¶ 5. “The American Rule ordinarily prohibits an award of attorney’s fees absent a specific statutory provision or an agreement of the parties.” Galkin v. Town of Chester, 168 Vt. 82, 91, 716 A.2d 25, 31 (1998). An award of attorney’s fees is proper where a contract specifically provides for them. Foster & Gridley v. Winner, 169 Vt. 621, 624, 740 A.2d 1283, 1287 (1999) (mem.); see also Mt. Everest Ski Shops, Inc. v. Nordica USA, Inc., 736 F. Supp. 523, 527 (D. Vt. 1989) (“A contract, too, may vary the application of the [American] rule; the court may depart from the American Rule only to the extent which the contract provides.”). When a contract provides for attorney’s fees, Vermont courts are loathe to revise the agreement struck by the parties and deny them the benefit of their bargain. See Ianelli v. Standish, 156 Vt. 386, 389, 592 A.2d 901, 903 (1991) (granting attorney’s fees to defendant in dispute over a real estate contract).

¶ 6. Here, the parties negotiated and agreed to a “late fee” provision that provided for attorney’s fees in the event of a balance overdue more than thirty days from the invoice date. Because this case involves a construction contract, we look to the specific statutes that the Legislature has promulgated concerning disputes arising therefrom. See 9 V.S.A. §§ 4001-4009 (setting forth, inter alia, owners’ and contractors’ payment obligations in the context of construction contracts). Under those statutes, the default position is that “[t]he owner shall pay the contractor strictly in accordance with the terms of the construction contract.” Id. § 4002(a). However, the owner’s duty to pay the contractor, including a “late fee” provision like the one at issue here, must be considered in light of 9 V.S.A. § 4007(a):

Nothing in this chapter shall prevent an owner ... from withholding payment in whole or in part under a construction contracting an amount equalling the value of any good faith claims against an invoicing contractor or subcontractor, including claims arising from unsatisfactory job progress, defective construction, disputed work or third-party claims.

¶ 7. The trial court did not abuse its discretion in refusing to invoke the “late fee” provision concerning attorney’s fees because Crosbie had a good faith basis under § 4007(a) for withholding payment of the outstanding balance for two reasons. First, as the jury found, Fletcher Hill breached the contract by failing to complete the installation of the home in a workmanlike manner. Indeed, Crosbie’s counterclaim describes a list of substantial deficiencies, including the fact that the two structural halves of the house were not properly set on the foundation, with one side of the house resting approximately three-quarters of an inch higher than the other. The jury confirmed Fletcher Hill’s breach by answering Jury Interrogatory 4 — “Did the Plaintiff breach the contract by not performing in a workmanlike manner at least in part?” — in the affirmative, and awarding Crosbie $4000. In addition, in assessing Fletcher Hill’s request for attorney’s fees, the trial court noted that “there was an adequate basis in the record, had [the jury] chosen to do so, to provide more relief to the defendant,” and that as a result of the “issues of poor workmanship” and “the substantial deficiencies in the construction,” Crosbie “was within her rights to withhold funds under the circumstances.”

¶ 8. Second, prior to the time the home became ready for occupancy, the unpaid subcontractor filed an action and a mechanic’s lien against Crosbie, demanding $5595 for labor and materials. Thus, the record reveals that at the time the $15,000 final payment came due, Crosbie was aware of the deficiencies in the construction of the home and her potential liability to the subcontractor. On this basis, the trial court declined to. apply the prompt payment provision of the contract to the issue of attorney’s fees after the jury verdict, reasoning that “to base an award of attorney’s fees on a contract which the plaintiff violated would be contrary to law.” The trial court’s decision correctly avoids the unfairness that would follow from penalizing Crosbie for, in effect, miscalculating the amount she was entitled to withhold. It also comports with the Legislature’s intent, as evidenced by § 4007(a), to permit a party to withhold payment until after the parties resolve their disputes, assuming the withholding party had a good faith basis.

¶ 9. The two cases relied upon by the dissent in reasoning that the contract provision should govern, post, ¶ 29, do not alter the analysis. First, neither Weidner v. Szostek, 614 N.E.2d 879 (Ill. App. Ct. 1993), nor Fenner & Shea Construction Co. v. Wadkins, 511 P.2d 924 (Colo. Ct. App. 1973), addressed a statutory scheme governing construction contracts similar to §§ 4001-4009. Furthermore, in neither case did the trier of fact find that the contractor breached the contract by its deficiencies in workmanship, as the jury in this case did when it answered Jury Interrogatory 4 in the affirmative.

¶ 10. The trial court also correctly declined to award attorney’s fees under 9 V.S.A. § 4007(c). Section 4007(c) states that “[notwithstanding any contrary agreement, the substantially prevailing party in any proceeding to recover any payment within the scope of this chapter shall be awarded reasonable attorneys’ fees in an amount to be determined by the court or arbitrator, together with expenses.” Based on the jury’s verdict and the damage awards, both parties requested an award of fees. The court decided that neither party was entitled to attorney’s fees under the statute because neither had “substantially prevailed.”

¶ 11. On appeal, Fletcher Hill argues that the court erred because it did substantially prevail in this action. It relies on simple mathematics, pointing to the fact that the jury’s verdict was a net award of $11,067 in its favor. To support its position, Fletcher Hill relies on an unpublished Washington Court of Appeals opinion, which held that the trial court properly awarded attorney’s fees based on one party’s receipt of a net judgment. See Durall v. Simon, No. 18760-8-III, 2000 WL 1476157, at *3 (Wash. Ct. App. Oct. 5, 2000) (holding that because plaintiff received net judgment, trial court did not abuse its discretion in finding plaintiff was substantially prevailing party and thus entitled to fees). ,

¶ 12. While the mandatory language of § 4007(c) requires an award of attorney’s fees to a substantially prevailing party, the question of whether any party to a lawsuit substantially prevailed is left to the trial court’s discretion. See, e.g., De Witt v. Liberty Leasing Co., 499 P.2d 599, 601 (Alaska 1972) (“The determination of which party prevailed is committed to the discretion of the trial court and is reviewable on appeal only for abuse.”). While acknowledging that, “in terms of sheer dollars and cents,” plaintiff prevailed, the court did not “think the plaintiff substantially prevailed in this case. I think it was clearly a split decision.” The court further explained:

There were clearly issues of poor workmanship ... in this case. The defendant was within her rights to withhold funds under the circumstances. There w[ere] substantial deficiencies in the construction, not the least of which is that a section of this house was offset, and other items too numerous to mention____[T]he point was, it was not a clear victory in favor of the plaintiff.

¶ 13. We have applied § 4007(c) to require an award of attorney’s fees, but under circumstances that contrast sharply with this case. For instance, we have held that where a subcontractor’s claims against a contractor were dismissed on summary judgment, the trial court correctly awarded attorney’s fees to the contractor as the substantially prevailing party. DJ Painting, Inc. v. Baraw Enters., 172 Vt. 239, 246-47, 776 A.2d 413, 419-20 (2001). Here, we have a jury verdict that resulted in awards to both parties. In addition, the trial court, in calculating the interest due to Fletcher Hill, reduced the principal amount by $3500 — the amount of the yet-to-be-satisfied judgment against Fletcher Hill in favor of the subcontractor who filed a lien and a trustee process against Crosbie. Fletcher Hill fails to factor that reduction into its mathematical solution of which party substantially prevailed. In light of the facts of this case, we find the court’s exercise of discretion regarding attorney’s fees sustainable.

¶ 14. Neither the language of § 4007(c) nor the case law cited by the dissent dictates that determining whether a party substantially prevailed turns on a simple mathematical comparison of the parties’ respective recoveries. First, although the dissent is correct that the statute “accords no discretion to the court to deny fees where it applies,” post, ¶ 34, determining “where it applies” — or identifying the substantially prevailing party — falls within the trial court’s discretion, and does not flow automatically from the calculation of the net victor. Furthermore, the use of the words “the substantially prevailing party,” 9 V.S.A. § 4007(c) (emphasis added), does not imply that there must be a substantially prevailing party in every case. It indicates, as the dissent points out, that there can be, at most, one substantially prevailing party. Applying the dissent’s “net victor” approach, however, would mandate an award of fees in every construction contract case that does not result in a “draw,” since the net victor would automatically qualify as the substantially prevailing party.

¶ 15. The cases cited by the dissent do not compel the conclusion that the party with a net verdict is automatically the substantially prevailing party. Indeed, several of the cases cited by the dissent make clear that identifying the substantially prevailing party is a matter for the trial court’s discretion and cannot be reduced to merely calculating the net verdict. See De Witt, 499 P.2d at 601 (“The determination of which party prevailed is committed to the discretion of the trial court and is reviewable on appeal only for abuse.”); Schmidt v. Colonial Terrace Assocs., 694 P.2d 1340, 1344 (Mont. 1985) (“‘No one factor should be considered in determining the prevailing party for the purpose of attorney fees. The party that is awarded a money judgment in a lawsuit is not necessarily the successful or prevailing party.’” (quoting E.C.A. Envtl. Mgmt. Servs., Inc. v. Toenyes, 679 P.2d 213, 217-18 (Mont. 1984))); see also In re Marriage of Murphy, 763 N.E.2d 933, 938 (Ill. App. Ct. 2002) (“Like those who have grappled with the issue before us, we cannot definitively say what the term ‘substantially prevail’ means in all cases.”), rev’d on other grounds, 786 N.E.2d 132 (in. 2003).

¶ 16. Significantly, with one exception, the cases cited by the dissent for the proposition that the net victor is the substantially prevailing party do not address the term “substantially prevailing party.” See De Witt,. 499 P.2d at 600 (statute awarded attorney’s fees to the “prevailing party”); Moss Constr. Co. v. Wulffsohn, 253 P.2d 483, 484-85 (Cal. Dist. Ct. App. 1953) (statute awarded attorney’s fees to the “successful party”); Corley v. Rivertown, Inc., 863 So. 2d 1244, 1246 (Fla. Dist. Ct. App. 2004) (statute awarded attorney’s fees to the “prevailing party”); Szoboszlay v. Glessner, 664 P.2d 1327, 1333-34 (Kan. 1983) (statute awarded attorney’s fees to the “successful party”); Schmidt, 694 P.2d at 1345 (contract awarded fees to the “prevailing party”). Thus, these cases do not control our interpretation of § 4007(c). The U.S. Supreme Court has pointed out that these terms are not synonyms, observing that fee-shifting statutes “contain varying standards as to the precise degree of success necessary for an award of fees — such as whether the fee claimant was the ‘prevailing party,’ the ‘substantially prevailing’ party, or ‘successful.’ ” Ruckelshaus v. Sierra Club, 463 U.S. 680, 684 (1983) (emphasis added). The Second Circuit has observed that, in the context of a fee-shifting statute, “the term ‘substantially’... alters the amount or degree of recovery necessary to obtain fees.”- Union of Needletrades, Indus. & Textile Employees v. INS, 336 F.3d 200, 208 (2d Cir. 2003) (emphasis in original).

¶ 17. The one case cited by the dissent involving a statute identical to § 4007(c) suggests that identifying the net victor does not end the inquiry. In Bridges PBT v. Chatta, 2003 PA Super. 122, 821 A.2d 590, the court recognized that requiring an award of attorney’s fees simply because a party won a net judgment would effectively “write out the modifier ‘substantially.’” 2003 PA Super. ¶9. Because we “presume that legislative language is inserted advisedly and not intended to create surplusage,” In re South Burlington-Shelburne Highway Project, 174 Vt. 604, 606, 817 A.2d 49, 52 (2002) (mem.), we refuse to read “substantially” out of § 4007(c) by equating the “substantially prevailing party” with the party holding a net judgment. Cf. In re Marriage of Murphy, 763 N.E.2d at 938 (“We thus presume that the legislature was familiar with the construction courts had previously given to the term ‘prevail’ and opted to require instead that a party ‘substantially’ prevail to prevent application of the lower threshold for ‘prevailing’ that had been applied in other contexts.”).

¶ 18. Next, we affirm the trial court’s interest rate determination. The court awarded Fletcher Hill prejudgment interest from the date the suit was filed, but declined to use the 2% per month interest rate specified in the contract. Instead, the court utilized the statutory interest rate of 12% per annum.

¶ 19. The court did not abuse its discretion when it declined to apply the interest rate contained in the contract’s “late fee” provision because, as explained above, the record indicated that Crosbie had a good faith basis for withholding the outstanding balance. After concluding it was not bound by the contractual interest rate, the court correctly applied the statutory 12% interest rate found throughout 9 V.S.A. §§ 4001-4009. For example, pursuant to 9 V.S.A. § 4002(d), payments to the contractor delayed beyond the due date will accrue interest, beginning on the twenty-first day, at a rate equal to that established by 12 V.S.A. § 2903(b). Section 2903(b) governs interest on judgment liens and sets the rate at 12% per annum. See also 9 V.S.A. § 4003(d) (setting interest rate for late payments owed by contractor to subcontractor at the 12% annual rate established by 12 V.S.A. § 2903(b)); 9 V.S.A. § 4005 (pegging interest rate for overdue retainage to the interest provisions of §§ 4002-4003). On this basis, we hold that the trial court’s imposition of a 12% interest rate was not error.

¶ 20. Finally, Fletcher Hill argues that the court erred in awarding interest from the date the complaint was filed, claiming instead that interest should have been awarded from the date of Crosbie’s breach. Fletcher Hill failed to object to this ruling at the post-trial hearing, and issues raised for the first time on appeal will not be considered by this Court. In re Lorentz, 2003 VT 40, ¶ 5, 175 Vt. 522, 824 A.2d 598 (mem.). Because Fletcher Hill assented to the date chosen by the court at the post-trial hearing, we treat the award of interest from the date of filing as the law of the case, and the trial court’s ruling on this issue stands..

Affirmed.