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Olmstead Construction, Inc. v. Otter Creek Investments, LLC

Court of Appeals of Iowa

September 25, 2019

OLMSTEAD CONSTRUCTION, INC., Plaintiff-Appellee/Cross-Appellant,
OTTER CREEK INVESTMENTS, LLC, Defendant-Appellant/Cross-Appellee.

          Appeal from the Iowa District Court for Linn County, Kevin McKeever, Judge.

         Olmstead Construction, Inc. and Otter Creek Investments, L.L.C. both appeal following resolution of their contract dispute. AFFIRMED IN PART AND REVERSED IN PART ON APPEAL; CONDITIONALLY AFFIRMED ON CROSS-APPEAL; AND REMANDED.

          Dana L. Oxley and Kevin J. Caster of Shuttleworth & Ingersoll, P.L.C., Cedar Rapids, for appellant Otter Creek Investments, LLC.

          Jeffrey A. Stone and Chad D. Brakhahn of Simmons Perrine Moyer Bergman PLC, Cedar Rapids, for appellee Olmstead Construction, Inc.

          Heard by Doyle, P.J., Blane, S.J. and Lloyd, S.J.[*]

          DOYLE, Presiding Judge

         The parties to a dispute over a construction contract ask us to review the district court's determination of various contract terms that affect the damages, attorney fees, and interest awarded in a breach-of-contract claim. We must also determine whether the district court erred by refusing to foreclose on a mechanic's lien.

         We affirm the judgment entered in favor of Olmstead Construction, Inc. (Olmstead Construction) on its breach-of-contract claim but reverse the awards of $48, 150 in damages for electrical costs and $47, 787.73 in attorney fees. We conditionally affirm the denial of Olmstead Construction's petition to foreclose on its mechanic's lien and affirm the district court in all other respects. We remand the case for further proceedings in conformance with this opinion.

         I. Background Facts and Proceedings.

         Brothers Don and Joe Burd decided to open a convenience store and gas station in Robins and formed Otter Creek Investments, LLC (Otter Creek) for that purpose. Otter Creek hired Olmstead Construction to build the store. In May 2014, the parties entered a cost-plus contract, which requires the owner to pay the contractor for construction costs plus a percentage markup. Otter Creek agreed to reimburse Olmstead Construction for its construction costs and pay a seven-percent markup on those costs. The contract also required Olmstead Construction to act as the project manager, which entailed obtaining subcontractor bids, supervising their subcontractor work, and processing and paying subcontractor invoices. Olmstead Construction would then bill Otter Creek for the subcontractor costs plus the seven-percent markup on those costs.

         In July 2014, Olmstead Construction provided Otter Creek an initial estimate of the total cost of construction, which it projected to be $1, 204, 774. Construction began. During 2014, Olmstead Construction billed Otter Creek for work totaling $81, 093.16. Otter Creek paid Olmstead Construction this amount in December 2014.

         By the end of the year, Otter Creek realized it needed to scale back the cost of the project due to financing issues. As a result, it redesigned the construction plans between December 2014 and May 2015 with Olmstead Construction's help. Based on Otter Creek's changes to the plans, Olmstead Construction submitted a revised estimate of the total cost of construction on April 5, 2015, which it projected to be $962, 535. Two days later, Olmstead Construction submitted a new estimate, this time projecting a total cost of $948, 132.

         One way in which Otter Creek tried to reduce the cost of the project was to contract directly with some subcontractors, eliminating the seven-percent markup Olmstead Construction would otherwise receive for that subcontracted work. One subcontractor Otter Creek opted to contract with directly was Streff Electric, the electrical subcontractor. The parties agreed that Otter Creek would pay Streff Electric directly for the portion of the electrical work running to the gas pumps while Olmstead Construction would oversee the work Streff Electric performed inside the store. Olmstead Construction's revised estimates reflect this change.[1]

         Olmstead Construction received invoices from the subcontractors it supervised, while those contracting directly with Otter Creek submitted invoices to Don Burd. Daniel Olmstead, the owner and president of Olmstead Construction, testified, "We pay strictly off whatever invoices are sent to us." So when Olmstead Construction received invoices from Streff Electric for work on the gas pumps, Daniel Olmstead assumed Otter Creek was adding that expense back into their contract despite Otter Creek's silence on the matter. Because it received the invoice, Olmstead Construction paid Streff Electric for that work and added the expense to its invoice to Otter Creek. Unbeknown to Olmstead Construction, Otter Creek also paid Streff Electric for the electrical work on the gas pumps.

         During 2015, Olmstead Construction billed Otter Creek for work totaling $778, 432.84 in 2015. Don Burd noted some items listed as completed in an October 2015 invoice were for work that had not yet begun and asked for documentation of the costs. He never received the requested documentation. When Olmstead Construction sent a new invoice in December without documentation, Don Burd again asked for documents to verify the costs. Although Olmstead Construction never provided documentation, Otter Creek paid the total amount due in December 2015.

         In February 2016, Olmstead Construction sent Otter Creek three invoices listing different amounts owed. An invoice dated February 9 shows a total project cost of $999, 850 and an amount due of $102, 930.84. An invoice dated February 12 shows a total project cost of $962, 535 and an amount due of $102, 928. Another invoice dated February 12 also shows a total project cost of $962, 535 but an amount due of $35, 483.16. When Otter Creek asked about the invoices, Olmstead Construction stated it had revised the invoices and would invoice for "extras" later.

         Olmstead Construction sent a final invoice to Otter Creek on March 22, 2016. That invoice shows a total project cost of $1, 058, 869.82 and an amount due of $199, 343.82. Confused about what the additional charges were for, Don Burd decided to wait to pay it until Olmstead Construction provided explanation or documentation of the costs. Olmstead Construction informed Otter Creek that it would file a mechanic's lien if Otter Creek failed to pay the invoice within thirty days. Olmstead Construction filed a mechanic's lien on April 12, 2016.

         In June 2016, Olmstead Construction petitioned to foreclose the mechanic's lien for the remaining $199, 343.82. Otter Creek counterclaimed for breach of contract and defective construction. Olmstead Construction amended its petition to add a claim for breach of contract, seeking prejudgment interest and attorney fees.

         Following a bench trial, the district court found Olmstead Construction proved its breach-of-contract claim. It entered a $217, 121.19 judgment for Olmstead Construction, which included $48, 150 in damages attributable to work on the gas pumps.[2] Although the court found Olmstead Construction proved a valid mechanic's lien, it denied the petition to foreclose on it. It also found Otter Creek failed to prove its counterclaim. After both parties moved the court to reconsider its ruling, the court reduced the judgment entered against Otter Creek to $163, 395.84, based on an error in its damage calculation.[3] The court awarded Olmstead Construction $47, 787.73 in attorney fees and assessed interest from the date of judgment. Otter Creek appeals and Olmstead Construction cross- appeals.[4]

         II. Breach of Contract.

         We review breach-of-contract claims for errors at law. See Postell v. Am. Family Mut. Ins. Co., 823 N.W.2d 35, 41 (Iowa 2012) (stating the court reviews contract interpretation and construction for errors at law). Under this review, the district court's factual findings are binding on us if supported by substantial evidence. See Metro. Prop. & Cas. Ins. Co. v. Auto-Owners Mut. Ins. Co., 924 N.W.2d 833, 839 (Iowa 2019). That said, the district court's legal determinations do not bind us. See Westhoff v. Am. Interins. Exch., 250 N.W.2d 404, 408 (Iowa 1977).

         To establish breach of contract, a party must show:

(1) the existence of a contract; (2) the terms and conditions of the contract; (3) that it has performed all the terms and conditions required under the contract; (4) the defendant's breach of the contract in some particular way; and (5) that plaintiff has suffered damages as a result of the breach.

Iowa Arboretum, Inc. v. Iowa 4-H Found., 886 N.W.2d 695, 706 (Iowa 2016) (citation omitted). The parties stipulated to the existence of a contract, and the district court found that Otter Creek breached the terms of the contract by failing to provide prompt payment to Olmstead Construction for completion of the contracted work. On appeal, the parties challenge the district court's interpretation of various terms of the contract, which affect the amount of damages and the award of attorney fees.

         A. Payment for Electrical Work.

         Otter Creek first challenges the portion of the district court's order awarding damages to Olmstead Construction to reimburse payments it made to Streff Electric for the work Streff Electric performed on the gas pumps. The court determined that the $45, 000 Streff Electric billed for this work was "related to material, labor, or services provided for the purpose of the construction project." Because the contract required Otter Creek to pay Olmstead Construction costs plus seven percent, the court held Olmstead Construction had a right to recover $48, 150 for the this work.

         Otter Creek challenges the evidence that Olmstead Construction paid the $45, 000 invoiced by Streff Electric for the work on the gas pumps. In the alternative, it argues that Olmstead Construction cannot recover payments to Streff Electric for the work on the gas pumps because this work is not a cost under the contract.

         Assuming Olmstead Construction paid Streff Electric for wiring the gas pumps, Olmstead Construction cannot recover that amount from Otter Creek because the work is not a cost of construction under the contract. The contract states that Olmstead Construction proposes to furnish all labor, materials, and equipment to complete a list of items.[5] One of the items listed is "Electrical." The contract provides no further detail on the electrical work. But when asked to explain his understanding of Olmstead Construction's obligations under the contract, Daniel Olmstead testified:

Electrical was all-mainly all we did on-or I guess what I'd say is the main thing we ever did on this building was the building only. There was a lot of other work that was completed around this project that was not included in our contract or in our proposal. So the electrical included everything that pertained to the building itself, which would have been the lights, the wiring, everything like that.

         Likewise, Don Burd testified:

A. On our initial meeting, we-I laid out the-what I needed him to perform. And it would be to construct the building, to manage the construction of the building, managing the subcontractors, obtaining all the bid work for the different particulars of the job, and submitting all that and-
Q. Did you discuss whether or not the contract would include the fueling station, the pumps and so on? A. No. I told him that we had another contract for that portion of work.
Q. So you discussed it but you told him you had another contractor? A. Yes, it was going to be the building only.

         Olmstead Construction's July 2014 estimate also reflects that the scope of its work was limited to construction of the building. The estimate includes a more detailed list of Olmstead Construction's responsibilities, listing five categories of electrical work: (1) building, (2) paging and sound, (3) security system, (4) IP based CCTV, and (5) network cabling. Under the category of "Items furnished by owner, " the estimate lists "Fuel tanks and pumping equipment" as item 11. Daniel Olmstead testified that the work Streff Electric performed on the gas pumps is the same work that the July 2014 estimate lists as "furnished by owner."

         Daniel Olmstead testified he did not know that Otter Creek contracted directly with Streff Electric for the work performed on the gas pumps. Don Burd disputed this claim in the following testimony:

Q. Did you at any time tell Olmstead Construction that you were contracting directly with Streff Electric with respect to the fuel pumps?
A. Yes, I would have. That is not in the scope of Olmstead's work that we had discussed.
Q. Did you have conversations at the very beginning of your relationship with Olmstead Construction about the scope of the ...

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