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Aqua Palace, LLC v. Johnson

Court of Appeals of Iowa

October 24, 2018

AQUA PALACE, LLC, an Iowa Limited Liability Company, d/b/a AQUA PALACE SPA & POOL, Plaintiff-Appellee,
v.
ROB and LISA JOHNSON, Defendants-Appellants.

          Appeal from the Iowa District Court for Pottawattamie County, Kathleen A. Kilnoski, Judge.

         Defendants appeal from the district court's ruling on the plaintiff's breach-of-contract action.

          Mark J. Rater of Rater Law Office, Council Bluffs, for appellants.

          Keith A. Harvat of Houghton Bradford Whitted PC, LLO, Omaha, Nebraska, for appellee.

          Considered by Vaitheswaran, P.J., and Potterfield and Tabor, JJ.

          VAITHESWARAN, PRESIDING JUDGE.

         Rob and Lisa Johnson contracted with Aqua Palace, LLC to design and install a custom swimming pool in connection with a large-scale renovation of their home in Omaha, Nebraska. The project was plagued by delays, changes, and cost overruns. Eventually, the Johnsons stopped making payments to Aqua Palace and terminated the contract.

         Aqua Palace sued the Johnsons for breach of contract. Following trial, the district court entered a $92, 439.66 judgment in favor of Aqua Palace and ordered the Johnsons to pay Aqua Palace's attorney fees of $54, 143.89.

         On appeal, the Johnsons challenge (1) Aqua Palace's entitlement to charges included in a running change order; (2) amounts they characterize as an illegal penalty; (3) an $18, 000 charge they view as a "duplicate bill"; (4) the amount of sales taxes; (5) Aqua Palace's failure to treat a $5000 "design fee" as a deposit; (6) the amount of the attorney-fee award; and (7) the computation of interest.

         I. Change Orders

         Under the contract, any changes were to be in writing. Pursuant to this provision, the Johnsons signed several change orders for specific items. The Johnsons do not take issue with the charges in these change orders. They challenge a "running change order," given to them several months into the project and listing additional charges for a variety of items. They assert, "Aqua Palace had a duty to notify [them] they were being charged extra over and above the contract and agreed upon change orders on the day in question or very soon thereafter," so they could "make changes to the project or . . . elect cost saving measures." In their view, "The running change order was never signed by [them]" and "was never a valid contract between the parties."

         The district court was not persuaded by this argument. The court cited "the contract," which "explicitly stated that additions to the contract were due when they were invoiced." The court further stated: "Whether or not the parties had written change orders, running change orders, or no change orders, the written contract was clear that once the 'extras' were ordered and installed, the amount invoiced was due." The district court determined the contract authorized the invoicing of work requested by the Johnsons "with or without a written change order."

         The district court's reading of the contract was not erroneous. See NevadaCare, Inc. v. Dep't of Human Servs., 783 N.W.2d 459, 465 (Iowa 2010) (setting forth standard of review); see also In re Estate of Woodroffe, 742 N.W.2d 94, 106 (Iowa 2007) ("The intent of the parties is controlling, and intent is to be determined from the language of the contract, when possible."). The contract obligated the Johnsons to pay for the items included in the running change order whether or not the order was signed or given to them on or before the charges were incurred.

         The contract expressly stated invoices would satisfy the change-order requirement. The pertinent language was as follows: "Extras constructed or installed by the Contractor at the request of the Owner with or without a written change order, shall be deemed additions to this contract, and once ordered or installed an invoice for the order shall be given satisfying the written change requirement and billed accordingly." The contract additionally stated, "Extras, including Electrical, Plumbing w/ required permits are in addition to the contract price and shall be paid as billed. Progress payments and payments for extras are due as requested and/or billed." And, the contract stated:

If the Owner request changes or modifications in the pool plan requiring additional expenses or charges to the Contractor, the Owner shall pay the Contractor the amount invoiced for these extras upon being invoiced or upon installation, which ever shall be requested. The cost of all extras, if any, shall be in addition to the contract price.

         The question becomes whether the Johnsons requested the changes contained in the running change order. See Nepstad Custom Homes Co. v. Krull, 527 N.W.2d 402, 407 (Iowa Ct. App. 1994) ("A builder may recover from an owner for extras ordered or agreed upon which were not covered by the contract."); Palmer v. Glasbrenner, No. 03-0492, 2004 WL 1159736, at *3 (Iowa Ct. App. May 26, 2004) ("A contractor may recover for extra work only if it was performed with the knowledge or consent of the adverse party."). The district court found, "[T]he extra work performed by Aqua Palace after the written contract was executed was done at Johnsons' request." The court gave little weight to Lisa Johnson's testimony that she had "no idea there was a running change order." The court stated, "While Johnsons were disgruntled about Aqua Palace's timing in providing the written invoices or change orders, they presented no evidence that the materials they ordered were not supplied or that the work by Aqua Palace was not done at their request." Substantial evidence supports the court's finding. See NevadaCare, Inc., 783 N.W.2d at 465 (reviewing fact findings for substantial evidence).

         The Johnsons began making changes to the original plan almost immediately after the contract was executed. Aqua Palace's co-owner, Scott Rolenc, recalled that, as of the first day on the job, "the whole scope . . . changed." The Johnsons expanded the project to include a "retaining wall . . . and pavers." The change required Aqua Palace to "[s]upply 40 ton of selected gray natural limestone blend . . . and [i]nstall a 3-tiered design retaining wall, with excavation work, and selective backfill material." The company was forced to "re-change [its] excavation position." The Johnsons also "[i]ncrease[d] [the] patio area around [the] spa, including adding [a] concrete base." They added three "staircases of solid stone," "a custom spa," barbecue walls, and a ¶]et system" for the pool. In light of the changes, the Johnsons' architect insisted on adding drain lines behind the retaining walls. Rolenc testified he "talked about the additional charges" with the Johnsons. The Johnsons concededly approved these modifications in writing.

         Many of the modifications included in the running change order flowed from these approved modifications or were necessary to comply with instructions from the general contractor or architect. For example, the general contractor limited access to the pool area, forcing Aqua Palace to incur costs for the rental of a truck to run concrete to the upper deck. Planned landscaping was also altered, requiring the installation of additional drain lines and an increased number of pavers. In sum, the district court as fact finder reasonably found that the Johnsons authorized the substantive work billed in the running change order.

         The changes, combined with required coordination among the various home-renovation projects, resulted in delays. The running change order included charges for the delays. The district court approved these charges after finding "the delays were caused by Johnsons or their agents." Substantial evidence supports the finding.

         Lisa Johnson agreed "communication" on the projects "was poor." Although she laid the blame for the lack of coordination at Aqua Palace's feet, many of the delays were occasioned by the contractor, subcontractors, or architect the Johnsons hired. For example, Aqua Palace workers had to wait for painters to finish their work on a garage and were forced to repair a sand bed that was damaged in the process. Rolenc testified, "When that contractor now ...


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