Nova Contracting, Inc. v. City Of Olympia

Filed
Washington State
Court of Appeals
Division Two
April 18, 2017
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
NOVA CONTRACTING, INC., a Washington No. 48644-0-II
Corporation,
Appellant,
v. UNPUBLISHED OPINION
CITY OF OLYMPIA, a Washington
Municipal Corporation,
Respondent.
MAXA, A.C.J. – Nova Contracting, Inc. appeals the trial court’s summary judgment
dismissal of its claim that the City of Olympia breached the implied duty of good faith and fair
dealing in its administration and termination of a construction contract between the City and
Nova. Nova also appeals the trial court’s award of liquidated damages to the City on the City’s
counterclaim for breach of contract.
We hold that the trial court erred in granting summary judgment in favor of the City on
Nova’s duty of good faith and fair dealing claim because Nova presented sufficient evidence to
create a genuine issue of material fact that the City prevented Nova from attaining its justified
expectations under the contract. As a result, we also vacate the trial court’s award of liquidated
damages and reasonable attorney fees to the City. However, because the liquidated damages
issue may arise again on remand, we consider the enforceability of the liquidated damages
No. 48644-0-II
clause. We hold that the trial court did not err in ruling on summary judgment that the liquidated
damages clause is enforceable if the City prevails on its breach of contract claim on remand.
Accordingly, we reverse the trial court’s summary judgment dismissal of Nova’s claim
for breach of the duty of good faith and fair dealing, vacate the trial court’s award of liquidated
damages and reasonable attorney fees to the City, and remand for further proceedings consistent
with this opinion.
FACTS
Project Award
In early 2014, the City published an invitation for bids to replace a culvert that conveyed
a creek underneath a paved bike trail. In May 2014, the City accepted Nova’s bid, although
Nova alleges that some City staff wanted another contractor to get the bid and were looking for
reasons to reject the bid. The parties executed a contract that incorporated the project’s plans
and specifications, Nova’s bid proposal, and the Washington State Standard Specifications for
Road, Bridge, and Municipal Construction.1
The contract required that Nova send several submittals for the City’s engineer to
approve before construction could begin, including a detailed description of the work, a bypass
pumping plan, a work area excavation plan, and an access and haul route plan. The contract also
required the City’s engineer to approve other submittals before the work outlined in those
submittals could proceed. The contract provided that the City would review these submittals,
1
The record does not contain the entire contract, including many of the project-specific plans
and specifications. In addition, on summary judgment the parties submitted only portions of the
standard specifications.
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that the City’s decisions would be final, and that Nova would bear all risk and cost of work
delays caused by non-approval of any submittals.
Under the contract, Nova was required to complete the work within 45 working days
after the City issued a notice to proceed. The contract stated that Nova would be liable for
liquidated damages of $939.46 per day if it failed to complete the project on time.
Problems with Submittal Process
On August 11, 2014, the City issued a notice to proceed. Nova’s initial schedule
indicated that Nova intended to mobilize to the construction site on August 12. But Nova could
not mobilize as scheduled because of delays in the submission and approval of Nova’s
submittals. On August 19, the City sent Nova an email stating that it was clear that Nova would
be unable to meet the project schedule and requesting a revised schedule.
The parties continued to have problems as the City rejected many submittals, in some
cases rejecting re-submittals as well. Nova claimed that the City had been improperly rejecting
submittals and that it could not meet the project schedule as a result. The City expressed
concerns about the lack of sufficient information in several of Nova’s submittals. By September,
key submittals remained unapproved. Nova provided several submittals on September 4 that the
City rejected.
Notice of Default and Termination
On September 4, the City sent Nova a letter stating that the City considered Nova to be in
default on the contract for several reasons, including: (1) Nova’s failure to mobilize to the site,
(2) the lapse of 17 out of 45 total working days, (3) Nova’s failure to provide an updated project
schedule, (4) Nova’s repeated failure to provide satisfactory versions of several submittals, and
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(5) the City’s concern that Nova would not complete the project within the time remaining. The
letter concluded that the cumulative effect of these problems constituted a material default under
the contract. The City stated that Nova had 15 days to cure the default by providing acceptable
submittals, submitting an updated schedule, and showing that the project could be completed in
the original time frame.
Also on September 4, Nova mobilized to the work site. But on September 8, the City
delivered a stop work order to the site. The City’s reasons for the stop work order included
Nova’s failure to notify the City before beginning any work, as required by the contract; Nova’s
attempts to gain access to the project site and its entry to the site without prior approval; and
placement of equipment on the site without approval for use of that equipment.
Nova expressed surprise at the City’s action. Nova pointed out that the City’s first
ground for default was Nova’s failure to mobilize to the site, but that the City simultaneously
demanded that Nova remove its equipment from the site. In multiple letters sent on September 9,
Nova protested the default and responded in detail to the City’s grounds for default.
On September 18, the City rejected Nova’s protest. The City stated that the contract
would be terminated unless Nova met the requirements in the September 4 default letter by
September 19. In another letter dated September 18, the City responded to Nova’s protest of the
default. On September 19, Nova sent a lengthy letter contesting the City’s grounds for
terminating the contract.
On September 24, the City sent Nova a letter terminating the contract. The letter asserted
that Nova had “chosen to assert protests and excuses rather than provide the requested
documents and assurances.” Clerk’s Papers (CP) at 215.
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Nova’s Lawsuit
Nova filed a lawsuit against the City, asserting that the City had breached the parties’
contract. Among other allegations, Nova claimed that the City’s handling of Nova’s submittals
both imposed requirements that were not part of the project’s specifications and delayed Nova’s
performance so that the project could not be timely completed. The City counterclaimed that
Nova had breached the contract by failing to complete the project and therefore was liable for
liquidated damages.
The City moved for summary judgment, arguing that it properly terminated the contract
for default, that Nova was liable for liquidated damages for failing to complete the project on
time, and that Nova was not entitled to recover damages. The City agreed to limit its claim for
liquidated damages to the amount accumulated over the 45 days allowed for performance.
Nova argued that questions of fact existed as to why the project was not completed and
that the City breached its duty of good faith and fair dealing and engaged in other conduct that
constituted a breach of contract. Nova also argued that the contract’s liquidated damages clause
should not be enforced. The trial court granted the City’s motion, dismissed Nova’s claims, and
awarded the City liquidated damages of $42,140.70. The trial court also awarded attorney fees
to the City under RCW 39.04.240.
Nova appeals the trial court’s summary judgment order.
ANALYSIS
A. STANDARD OF REVIEW
We review summary judgment orders de novo. Keck v. Collins, 184 Wn.2d 358, 370,
357 P.3d 1080 (2015). On summary judgment, we construe all evidence and reasonable
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inferences in favor of the nonmoving party.2 Id. Summary judgment is appropriate when the
record shows “no genuine issue as to any material fact” and “the moving party is entitled to a
judgment as a matter of law.” CR 56(c); Keck, 184 Wn.2d at 370. An issue of fact is genuine if
the evidence would be sufficient for a reasonable jury to find in favor of the nonmoving party.
Keck, 184 Wn.2d at 370. Summary judgment is appropriate if reasonable minds can reach only
one conclusion on an issue of fact. Sutton v. Tacoma Sch. Dist. No. 10, 180 Wn. App. 859, 865,
324 P.3d 763 (2014). To avoid summary judgment, the nonmoving party must set forth specific
facts that rebut the moving party’s contentions and show a genuine issue of material fact. Elcon
Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 169, 273 P.3d 965 (2012).
B. DUTY OF GOOD FAITH AND FAIR DEALING
Nova argues that questions of fact exist concerning whether the City breached the duty of
good faith and fair dealing when considering Nova’s submittals. Nova specifically argues that
the City prevented Nova from attaining its justified expectations under the contract.3 We agree.
1. Legal Principles
Under Washington law, every contract is subject to an implied duty of good faith and fair
dealing. Rekhter v. Dep’t of Soc. & Health Servs., 180 Wn.2d 102, 112, 323 P.3d 1036 (2014).
This duty obligates the parties to a contract to cooperate with each other so that each party may
2
Nova argues that the trial court applied incorrect standards for evaluating the evidence on
summary judgment, weighing the evidence instead of viewing it in the light most favorable to
Nova. But because our review is de novo, how the trial court evaluated the evidence is
immaterial to our analysis.
3
Initially, the City argues that Nova waived all claims relating to the rejection of its submittals
because Nova failed to submit a timely protest under section 1-04.5 of the contract. We
disagree. Although Nova may have waived claims for the cost of work performed under the
contract, section 1-04.5 does not apply to expectancy and consequential damages.
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benefit from full performance. Id. The duty of good faith and fair dealing applies to public
agencies. Id. at 114.
The duty of good faith and fair dealing “exists only in relation to performance of a
specific contract term.” Badgett v. Sec. State Bank, 116 Wn.2d 563, 570, 807 P.2d 356 (1991).
As a result, the duty “cannot add or contradict express contract terms and does not impose a free-
floating obligation of good faith on the parties.” Rekhter, 180 Wn.2d at 113. And a party is
entitled to require performance of a contract according to its terms. Badgett, 116 Wn.2d at 570.
The duty “requires only that the parties perform in good faith the obligations imposed by their
agreement.” Id. at 569.4
To identify whether a breach of the duty of good faith and fair dealing has occurred,
Washington courts have looked to a party’s justified expectations under their contract. The
Supreme Court has stated that “[t]he duty of good faith requires ‘faithfulness to an agreed
common purpose and consistency with the justified expectations of the other party.’ ” Edmonson
v. Popchoi, 172 Wn.2d 272, 280, 256 P.3d 1223 (2011) (quoting RESTATEMENT (SECOND) OF
CONTRACTS § 205 cmt. a (AM. LAW INST. 1981)). Similarly, the court in Rekhter approved a jury
instruction stating that a plaintiff asserting a duty of good faith claim must prove that the
defendant “acted in a manner that prevented the [plaintiff] from attaining his or her reasonable
expectations under the contract.” 180 Wn.2d at 119.5
4
However, a violation of a contractual term is not required in order to find a violation of the duty
of good faith and fair dealing. Rekhter, 180 Wn.2d at 111-12.
5
Nova argues that a party breaches the duty of good faith and fair dealing by exercising its
discretion unreasonably. The City argues that its actions should be reviewed under an arbitrary
and capricious standard. But Washington law does not support either standard of liability.
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But because a party’s justified expectations depend on the contractual terms at issue, the
particular requirements of the duty of good faith and fair dealing change with the context. See
RESTATEMENT § 205 cmt. a (“The phrase ‘good faith’ is used in a variety of contexts, and its
meaning varies somewhat with the context.”). It therefore is difficult to define the duty of good
faith in terms that are both precise and generally applicable. See Best v. U.S. Nat’l Bank of Or.,
303 Or. 557, 739 P.2d 554, 557 (1987).
The comments to Restatement § 205 provide some guidance by listing examples of
improper conduct. Comment a notes that types of conduct can be characterized as bad faith if
they “violate community standards of decency, fairness or reasonableness.” RESTATEMENT
§ 205 cmt. a. Further, comment d states:
Subterfuges and evasions violate the obligation of good faith in performance even
though the actor believes his conduct to be justified. But the obligation goes
further: bad faith may be overt or may consist of inaction, and fair dealing may
require more than honesty. A complete catalogue of types of bad faith is
impossible, but the following types are among those which have been recognized
in judicial decisions: evasion of the spirit of the bargain, lack of diligence and
slacking off, willful rendering of imperfect performance, abuse of a power to
specify terms, and interference with or failure to cooperate in the other party’s
performance.
Id. cmt. d. The Restatement reaffirms that whether a defendant has violated the duty of good
faith and fair dealing requires courts to identify whether the defendant has violated a plaintiff’s
justified expectations under the contract.
Significantly, the Supreme Court cases and the Restatement commentary do not suggest
that the defendant must intend to harm the plaintiff. The Ninth Circuit reached the same
conclusion when applying Washington law in Scribner v. Worldcom, Inc., 249 F.3d 902 (9th Cir.
2001), a case cited in Rekhter, 180 Wn.2d at 113. The court in Scribner stated that a breach of
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the duty of good faith and fair dealing does not require that the defendant acted with “affirmative
malice” toward the plaintiff “or even that [the defendant] knew its decisions were inappropriate
when it made them.” 249 F.3d at 909. The court rejected the idea that “dishonesty or an
unlawful purpose is a necessary predicate to proving bad faith.” Id. at 910.
2. Application of Good Faith Duty
The City argues that the duty of good faith does not apply to its consideration of Nova’s
submittals. We disagree.
The duty of good faith and fair dealing applies when a party has discretionary authority to
determine a contract term. Rekhter, 180 Wn.2d at 113. The party must act in good faith in
setting and performing that term. Id. at 115. On the other hand, “if a contract gives a party
unconditional authority to determine a term, there is no duty of good faith and fair dealing.” Id.
at 119-20 (emphasis added).
The City argues that under Rekhter, it had no duty of good faith because it had
unconditional authority to determine whether to accept or reject Nova’s submittals. The City
points to section 1-05.1 of the contract, which stated that the City engineer’s “decisions will be
final on all questions,” including the project’s rate of progress, interpretation of project plans and
specifications, and termination of the contract for default. CP at 92. The City asserts that this
provision gave it total authority regarding Nova’s submittals and therefore the duty of good faith
did not apply to its decisions to reject them.
But this was not a situation where the City had an absolute right to reject all submittals
for any reason. Cf. Johnson v. Yousoofian, 84 Wn. App. 755, 759-63, 930 P.2d 921 (1996)
(noting that the duty of good faith did not apply where a lease included an unqualified statement
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that a tenant could not assign the lease without the landlord’s consent). The contract stated that
the City “shall be satisfied that all the Work is being done in accordance with the requirements of
the Contract.” CP at 92. The City was therefore required to exercise its discretion in a manner
that was consistent with those requirements. Further, although the contract provided that the
City’s “decisions will be final on . . . Interpretation of Plans and Specifications,” CP at 92, that
clause indicated that the City had complete authority, not that it could exercise that authority on
any basis.
The contract provisions clearly provided the City with discretion over accepting or
denying submittals. But that discretion was not absolute. And the only way both parties could
obtain the benefits of the contact was if the City accepted submittals that complied with the
contract’s requirements. Rekhter requires that the duty of good faith and fair dealing apply under
these circumstances. 180 Wn.2d at 113
We hold that the contract gave the City discretionary authority, not unconditional
authority, to accept or reject submittals. As a result, the duty of good faith and fair dealing
applied to the City’s consideration of Nova’s submittals.
3. Evidence of Breach
Nova’s duty of good faith and fair dealing claim relates to a specific contract term: the
City’s review of Nova’s submittals. Nova argues that it presented sufficient evidence to create a
genuine issue of fact that the City breached its duty of good faith in the handling of those
submittals. We agree.
The question here is whether the City’s actions interfered with Nova’s justified
expectations under the contract. See Rekhter, 180 Wn.2d at 119; Edmonson, 172 Wn.2d at 280.
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To support its claim, Nova presented the declarations of Nova’s president Jordan Opdahl, Nova’s
project manager Dana Madsen, and a construction management expert, Frank Pita. These
declarations allege that there were certain irregularities regarding the City’s review of its
submittals.
First, Madsen stated that the City’s requirement that all submittals be approved before
Nova could start any work was “very unusual and inefficient.” CP at 316. Opdahl claimed that
this requirement was contrary to industry practice, which only required approval of submittals
before starting the work to which the submittals applied.
Section 7-28.1(4) did list nine specific submittals that were required to be submitted
before construction. However, Madsen alleged that the City required the approval of all
submittals before any work could start. For instance, Madsen alleged that the City refused to
allow Nova to begin work because it had not approved a submittal for work that would occur in
the last three days of the project. The contract did not expressly require that all submittals be
approved before any work could begin. Other than the specific submittals for which pre-
approval was required, section 1-05.3 stated that the City must approve any drawings before
proceeding with the work that those drawings represent.
Second, Madsen stated that “the City failed to impose reasonable and proper
requirements on Nova when rejecting our submittals” and that some of the City’s requirements
were “nonsensical or impossible.” CP at 316. For example, Madsen claimed that the City
repeatedly rejected submittal 9 because mill reports for the new pipe had not been provided, even
though mill reports could not be prepared until the pipe was available for delivery and the City
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prohibited delivery until all submittals were approved. The City does not argue that the contract
required Nova to produce these mill reports before the pipe was available for delivery.
Third, Madsen stated that the City repeatedly rejected submittal 13 because the submittal
did not provide that flaggers must accompany all vehicles coming onto the work site. But
Madsen claimed that the project specifications did not require flaggers (as opposed to Nova’s
proposal for either a pilot car or flaggers), and therefore argued that imposing such a requirement
would require a formal change order. Nevertheless, the City rejected the submittals even though
Nova complied with the contract requirements. Opdahl also noted that the City requested that
Nova perform other work in a more cumbersome and expensive manner than required by the
contract.
Fourth, Madsen alleged that the City appeared to be reviewing submittals with the goal of
rejecting them, looking for any excuse to do so. He referred to this as “gotcha” review. CP at
318. Madsen claimed that “the City was using the submittal process to prevent Nova from
performing the contract rather than to assure itself that Nova’s performance would match the
contract.” CP at 318. For example, Madsen claimed that the City rejected submittal 7C because
a work layout plan was not attached even though it had been attached to submittals 7, 7B, and 8.
Madsen also referred to submittals 10 and 12, which the City ultimately did approve but initially
intended to reject for improper reasons.
Fifth, Madsen stated that the City rejected submittals for particular reasons and then
rejected re-submittals for new and different reasons. For example, Madsen claimed that
submittal 7 was rejected four times, each time for new and different reasons. Pita also noted this
situation, pointing out that the City’s conduct caused a serious problem for Nova because Nova
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was faced with moving targets as it attempted to obtain approval of its submittals. Madsen
alleged, “This creation of new excuses to reject resubmitted submittals that addressed the
previous reasons given for rejection strongly indicates that the City did not intend to approve
Nova’s submittals and allow Nova to perform the work.” CP at 319.
Sixth, as Pita emphasized, the City gave Nova mixed messages about mobilization to the
project site. The City notified Nova that it was in default for not mobilizing to the site. But
when Nova attempted to mobilize to the site, the City would not provide access and then claimed
that Nova’s entry onto the site was an additional basis for default.
Seventh, Opdahl stated that at the beginning of the project some City staff wanted
another contractor to get the bid and were looking for reasons to reject the bid. Later, the City’s
engineer stated that “[t]his is not going to be another Martin Way project,” a reference to a prior
project that had resulted in Nova receiving extra compensation because of the City’s design
errors. CP at 278. Opdahl claimed that the engineer continued to hold a grudge against Nova
because of that project.
Madsen summarized the City’s conduct as follows:
In my forty-six years in the construction industry, I have never seen a submittal
process such as this one. Olympia acted in a manner calculated to prevent project
performance by using changing standards and a “gotcha” review process on the
submittals. Rather than working with Nova to get the job done, while assuring itself
the work would be in accordance with the plans and specifications, Olympia
actually undermined and delayed the work, refusing to allow it to proceed despite
Nova’s proven willingness and ability to perform the work in accordance with the
plans and specifications. . . . Olympia misused the submittal process to prevent,
rather than advance, proper contract performance – and that is objectionable and
irritating.
CP at 320.
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Pita stated an opinion based on this conduct that the City used the submittal process to
“frustrate Nova’s performance and put Nova into a position where it could not perform.” CP at
253. He believed that the City “prevent[ed] contract performance by failing to approve
submittals in a proper and orderly fashion.” CP at 253. Pita further stated that “[t]he City’s
failure to approve the submittals and allow Nova to work was unreasonable, and may have been
an attempt to prevent Nova’s contract performance.” CP at 254. Pita concluded that “the City’s
failure to reasonably approve submittals in a manner that allowed both parties to reach a
reasonable conclusion is itself a breach of the contract.” CP at 254.
The City argues that it was justified in rejecting Nova’s submittals under certain contract
terms, and those arguments may be legitimate. Further, each one of Nova’s complaints, standing
alone, may not support liability. But we hold that under the broad standard of liability adopted
by the Supreme Court and viewing the evidence in a light most favorable to Nova, Nova’s
assertions and allegations taken together raise a question of fact of whether the City acted in a
manner that prevented Nova from attaining its justified expectations under the contract. See
Rekhter, 180 Wn.2d at 119. Accordingly, we hold that the trial court erred in granting summary
judgment in favor of the City on Nova’s implied duty of good faith and fair dealing claim.
C. AWARD OF LIQUIDATED DAMAGES
The trial court granted summary judgment in favor of the City on its breach of contract
counterclaim and awarded liquidated damages and reasonable attorney fees to the City. Because
we reverse on Nova’s duty of good faith and fair dealing claim, we vacate the trial court’s award
of liquidated damages and reasonable attorney fees to the City.
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D. ENFORCEABILITY OF LIQUIDATED DAMAGES CLAUSE
Even though we vacate the trial court’s award of liquidated damages to the City, we
address the enforceability of the liquidated damages clause because the issue may arise again on
remand. Nova argues that the trial court erred in enforcing the contract’s liquidated damages
clause because (1) questions of fact exist regarding whether the clause represented a reasonable
estimate of fair compensation and (2) the clause is unconscionable. We disagree.
1. Legal Principles
A liquidated damages clause in a contract generally provides that a party in breach of the
contract will be liable for an agreed amount. See Minnick v. Clearwire US LLC, 174 Wn.2d 443,
449, 275 P.3d 1127 (2012). Washington courts hesitate to interfere with the parties’ right to
contract as they please, even if application of a liquidated damages clause appears inequitable to
the breaching party. See Watson v. Ingram, 124 Wn.2d 845, 852, 881 P.2d 247 (1994); Salewski
v. Pilchuck Veterinary Hosp., Inc., 189 Wn. App. 898, 908, 359 P.3d 884 (2015), review denied,
185 Wn.2d 1006 (2016). As a result, liquidated damages clauses are favored and “courts will
uphold them if the sums involved do not amount to a penalty or are not otherwise unlawful.”
Watson, 124 Wn.2d at 850.
A liquidated damages clause is not a penalty and must be enforced if the agreed amount
constitutes a reasonable prediction of fair compensation for the probable harm that a breach
would cause. Id. at 850-51. The reasonableness of the estimate is evaluated at the time the
contract was formed, not at the time of trial. Id. at 851. Courts can consider a party’s actual
damages only in evaluating the reasonableness of the estimate. Wallace Real Estate Inv. Inc. v.
Groves, 124 Wn.2d 881, 893, 881 P.2d 1010 (1994).
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Courts also have stated that a liquidated damages clause is enforceable only if probable
damages are difficult to estimate, but this issue is more accurately treated as a factor in the
reasonableness analysis. Watson, 124 Wn.2d at 853. The greater the difficulty in estimating the
amount of harm, the easier it is to show that the estimate of harm is reasonable. Id.Proof of actual damages is not required to uphold a liquidated damages clause. Wallace
Real Estate, 124 Wn.2d at 892. However, “actual damages may be considered where they are so
disproportionate to the estimate that to enforce the estimate would be unconscionable.” Id. at
894.
2. Reasonableness of Estimate
Nova argues that questions of fact exist regarding the reasonableness of the liquidated
damages clause because it is uncertain whether the City has suffered any damages as a result of
the project not being performed. More specifically, Nova claims that the city could not suffer
any actual damages from the delay of a contract of “convenience” as opposed to a contract of
“urgency.”
But as stated above, a liquidated damages clause can be reasonable even if the non-
breaching party does not incur actual damages. See Wallace Real Estate, 124 Wn.2d at 892.
And Nova has presented no evidence or even argument that the agreed liquidated amount was
not a reasonable estimate of probable damages at the time the contract was formed. Nova also
cites no authority for the proposition that a non-breaching party cannot suffer damages unless the
contract involves a “necessary” or “urgent” project.
Further, in support of its summary judgment motion the City presented evidence of actual
damages. The City submitted a declaration stating that it had spent much more than the
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liquidated amount on the project, which would need to be duplicated on a future project. Nova
did not produce any evidence contesting this statement. As the nonmoving party, Nova had the
burden of coming forward with specific facts that show unreasonableness to avoid summary
judgment. See Elcon, 174 Wn.2d at 169. We therefore hold that Nova presented no evidence
that the liquidated damages clause was an unreasonable estimate of the City’s probable damages.
3. Unconscionability
Nova argues that the liquidated damages provisions is unenforceable because it is
unconscionable. We disagree.
a. Substantive Unconscionability
Whether an agreement is unconscionable is a question of law. McKee v. AT&T Corp.,
164 Wn.2d 372, 396, 191 P.3d 845 (2008). An unconscionable contract clause is voidable.
Romney v. Franciscan Med. Grp., 186 Wn. App. 728, 735, 349 P.3d 32, review denied, 184
Wn.2d 1004 (2015). An agreement may be either substantively or procedurally unconscionable.
McKee, 164 Wn.2d at 396. A contract is substantively unconscionable when it is one-sided or
overly harsh. Id. Substantively unconscionable clauses have been described as clauses that are
“[s]hocking to the conscience,” “monstrously harsh,” or “exceedingly calloused.” Nelson v.
McGoldrick, 127 Wn.2d 124, 131, 896 P.2d 1258 (1995).
A liquidated damages clause is unlawful if the estimated probable damages are too
disproportionate to actual damages. Wallace Real Estate, 124 Wn.2d at 894. Nova argues that
the liquidated damages provision here is one-sided and unduly harsh and that it provides the City
with a windfall benefit. Nova references the fact that the City did not need to have the project
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performed. Nova apparently relies on its claim that the City could not have incurred any actual
damages from Nova’s breach.
But once again, Nova has not provided any evidence that the City did not incur any actual
damages. And Nova did not refute the City’s evidence that it had spent more than the liquidated
amount in work that would have to be duplicated when it again attempts to complete the project.
We hold that Nova has presented no evidence that the liquidated amount is too
disproportionate to the City’s actual damages, and therefore hold that the clause is not
substantively unconscionable.
b. Procedural Unconscionability
Nova also argues that the liquidated damages clause was procedurally unconscionable. A
contract is procedurally unconscionable when one party lacked meaningful choice in the
agreement. Zuver v. Airtouch Commc’ns, Inc., 153 Wn.2d 293, 305, 103 P.3d 753 (2004).
Relevant considerations include the manner in which the contract was entered, whether the
plaintiff had a reasonable opportunity to understand the contract’s terms, and whether important
terms were hidden. Id. at 304.
Nova further argues that the contract was an adhesion contract and that all adhesion
contracts are procedurally unconscionable as a matter of law. But the case Nova cites, Blakely v.
Hous. Auth. of King County, 8 Wn. App. 204, 505 P.2d 151 (1973), does not support this
argument. In fact, in Blakely the court assumed the contract at issue was an adhesion contract,
but held that the contested provision was not unconscionable. Id. at 213. Whether a contract is
an adhesion contract is relevant but not determinative of procedural unconscionability. Zuver,
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153 Wn.2d at 304-05. As the City points out, all standard public works contracts would be
deemed unconscionable if Nova’s position was correct.
Apart from claiming that the contract was an adhesion contract, Nova does not explain
why this contract was procedurally unconscionable. No evidence suggests it was. Nova was a
sophisticated project bidder, it had a full opportunity to review the contract provisions, and the
liquidated damages clause was not hidden. Further, Nova previously had contracted with the
City, and as a company engaged in work of this type it was in a position to understand the
contract’s terms.
We hold that Nova has presented no evidence that the contract was procedurally
unconscionable.
4. Summary
There is no genuine issue of material fact that the liquidated damages clause constituted a
reasonable estimate of probable breach of contract damages. Further, the clause was not
unconscionable. Accordingly, we hold that the trial court did not err in ruling on summary
judgment that the liquidated damages clause is enforceable and that the City is entitled to
liquidated damages if it prevails on its breach of contract claim.
E. ATTORNEY FEES ON APPEAL
The City argues that it should be awarded appellate attorney fees under RCW 39.04.240,
which states that a party to an action arising out of a public works contract may be entitled to
attorney fees. Because we remand this matter to the trial court for further proceedings, we do not
award attorney fees to either party at this time.
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No. 48644-0-II
CONCLUSION
We reverse the trial court’s summary judgment dismissal of Nova’s claim for breach of
the duty of good faith and fair dealing, vacate the trial court’s award of liquidated damages and
reasonable attorney fees to the City, and remand for further proceedings consistent with this
opinion.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW
2.06.040, it is so ordered.
MAXA, A.C.J.
We concur:
LEE, J.
MELNICK, J.
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