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Superior Steel, Inc. v. The Ascent at Roebling's Bridge, LLC

Supreme Court of Kentucky

March 22, 2018

SUPERIOR STEEL, INC., AND BEN HUR CONSTRUCTION COMPANY, INC. APPELLANTS/CROSS-APPELLEES
v.
THE ASCENT AT ROEBLING'S BRIDGE, LLC; CORPOREX DEVELOPMENT AND CONSTRUCTION MANAGEMENT LLC; DUGAN 8b MEYERS CONSTRUCTION COMPANY AND WESTCHESTER FIRE INSURANCE COMPANY APPELLEES/CROSS-APPELLANTS AND DUGAN 85 MEYERS CONSTRUCTION COMPANY CROSS-APPELLANT
v.
THE ASCENT AT ROEBLING'S BRIDGE, LLC; CORPOREX DEVELOPMENT AND CONSTRUCTION MANAGEMENT LLC; J' SUPERIOR STEEL, INC.; BEN HUR CONSTRUCTION COMPANY, INC. AND WESTCHESTER FIRE INSURANCE COMPANY CROSS-APPELLEES

          RENDERED: DECEMBER 14, 2017

          ON REVIEW FROM COURT OF APPEALS CASE NOS. 2012-CA-000440-MR, 2012-CA-000441-MR, 2012-CA-000494-MR AND 2012-CA-000495-MR KENTON CIRCUIT COURT NOS. 07-CI-03886 AND 08-CI-01309

          COUNSEL FOR APPELLANTS/CROSS-APPELLEES: SUPERIOR STEEL, INC., AND BEN HUR CONSTRUCTION COMPANY, INC. Griffin Terry Sumner John Kendrick Wells, IV Donald Scott Gurney Frost Brown Todd, LLC.

          COUNSEL FOR APPELLEES/CROSS-APPELLANTS AND CROSS-APPELLEES: THE ASCENT AT ROEBLING'S BRIDGE, LLC Mark T. Hayden John Nalbandian Taft Stettinius 85 Hollister LLP.

          CORPOREX DEVELOPMENT AND CONSTRUCTION MANAGEMENT LLC, AND WESTCHESTER FIRE INSURANCE COMPANY Mark T. Hayden John Nalbandian Taft Stettinius & Hollister LLP.

          COUNSEL FOR CROSS-APPELLANT: DUGAN 85 MEYERS CONSTRUCTION COMPANY Thomas J. Kirkwood Kimberly Ellen Ramundo Heather Hawkins Thompson Hine LLP.

          COUNSEL FOR AMICUS CURIAE, THE AMERICAN INSTITUTE OF STEEL CONSTRUCTION: Kenneth Allen Bohnert Edward Francis Busch Scott Alan Johnson Conliffe, Sandman 8b Sullivan.

          COUNSEL FOR AMICUS CURIAE, THE AMERICAN SUBCONTRACTORS ASSOCIATION: Thomas Russell Yocum Richard Weber Benjamin Yocum 85 Heather LLC.

          OPINION

          HUGHES JUSTICE.

         The Ascent at Roebling's Bridge (the "Project") is a 21-floor, luxury condominium building in downtown Covington, owned by Appellee/Cross-Appellant The Ascent at Roebling's Bridge, LLC ("Ascent") and developed by Appellee/Cross-Appellant Corporex Development and Construction Management LLC ("Corporex"). Corporex, the design builder, contracted with Appellee/Cross-Appellant Dugan 8b Meyers Construction Company ("D&M"), the construction manager and general contractor. D&M worked directly with subcontractors, including Appellant/ Cross-Appellee Superior Steel, Inc. ("Superior"), the steel fabricator, and Appellant/Cross-Appellee Ben Hur Construction Company, Inc. ("Ben Hur"), the steel erector and installer. When new drawings led to extra work outside the scope of the original bid documents, Superior and Ben Hur proceeded with the work, but they were never paid for either that work or the retainage amount owed under Superior's contract with D&M. The two steel companies banded together as "the Steel Team" and brought suit against D&M, Ascent and Corporex.

         After a fifteen-day jury trial, the Kenton Circuit Court entered judgment in favor of Superior and Ben Hur against D&M and Ascent for the cost of the extra work and the unpaid retainage as well as attorneys' fees Incurred by Superior. D&M prevailed on its indemnification cross-claim against Corporex and Ascent and on the negligence cross-claim asserted against it by Corporex and Ascent. On appeal, the Court of Appeals reversed the judgment in its entirely, unwinding the majority of the trial court's rulings and returning the case to that court for a new trial. Having reviewed the trial proceedings, the record and applicable law, we affirm the judgment of the Court of Appeals in part, reverse in part, and remand for further proceedings consistent with this Opinion.

         FACTUAL AND PROCEDURAL BACKGROUND

         In November 2005, Ascent hired Corporex to be the "design builder" for the Project.[1] Later, in March 2006, Corporex hired D&M, as the construction manager/general contractor for the Project. Corporex agreed to pay D&M a $2.2 million lump sum, a $975, 000 contractor's fee (plus any participation in savings and a potential bonus), and a sum for the cost of the work as identified in the "Initial Estimate."

         In July 2006, D&M solicited bids for the fabrication and erection of structural steel for the Project. The bid package that D&M supplied to potential subcontractors included architectural and structural drawings for the Project. Notably, those drawings did not include a forces table (a chart which identifies the forces acting upon each piece of steel to be used on the Project) or designs for the steel connections.

         On August 4, 2006, D&M received three bids, including one from Superior, to be the subcontractor for the structural steel work. Subsequently, D&M contacted Superior and inquired whether the company would be willing to modify its bid proposal. As a cost saving measure, D&M wanted Superior to fabricate the steel for the project and have Ben Hur complete the erection and installation work. Prior to Superior submitting its modified bid, the Project's architect issued a revised set of drawings. Despite that fact, D&M instructed Superior to not acknowledge the revised drawings in making its bid; D&M wanted to be able to evaluate each of the bids it had received on an equal basis. Superior's modified bid was accepted by D&M in September 2006[2] and the parties' contract had a fixed price of $1, 814, 000. In turn, Superior contracted with Ben Hur to erect the steel and metal decking for $444, 000. As structured, payment for all of the steel work flowed from Corporex to D&M and then from D&M to Superior. Superior would then pay Ben Hur what it was owed for erection and installation of the steel fabricated by Superior.

         After Superior and Ben Hur were retained to work on the Project, further alterations were made to the structural design drawings issued by Ascent/Corporex. Corporex alerted D&M to the changes, and D&M in turn informed Superior and Ben Hur. Superior and Ben Hur expressed concern about the design changes as they would require additional work to be performed, work beyond the original scope of the contract.[3] In response, D&M separately directed both Superior and Ben Hur to perform the extra work, while keeping track of the time and costs.

         Prior to starting the additional work, Ben Hur's Vice President, Mark Douglas, sought the personal assurance of D&M's President, Jay Meyers, along with Corporex Vice-President Mike O'Donnell, that Ben Hur would be paid for the additional work. In a meeting with Meyers, Douglas was directed to proceed with the extra work, while tracking the time and costs. Meyers reassured Douglas that Ben Hur would not be cheated. On the day following the meeting, Dan Dugan of D&M drafted a letter to Superior acknowledging that additional work was necessitated due to changes to the design from the original bid documents and authorizing Superior to proceed with the additional work. That draft letter was forwarded to O'Donnell at Corporex, who directed Dugan not to send the letter.

         Later, Ben Hur and Superior submitted work orders to D&M detailing the additional work done on the Project. In turn, D&M submitted those work orders to Corporex. While Ascent/Corporex did pay for some of the extra work performed, they failed to pay for additional work performed on the forces table/design load increase, the roof edge condition, and the roof tip. When Superior submitted its written change order for this extra work, Bill Butler, a principal at Ascent and Corporex, ordered O'Donnell, the Corporex vice-president, to address the claim at a later time. Eventually, Ascent/Corporex refused to provide any additional compensation to Ben Hur and Superior. As the basis for their refusal, Ascent/Corporex asserted that the amounts requested by Superior and Ben Hur were excessive and that those claims were due to D&M's mismanagement of the Project. Ultimately, in addition to not being paid for additional work performed on the forces table/design load increase, the roof edge condition, and the roof tip, Superior also was not paid the $195, 143.40 owed in retainage earned on the base contract work.[4]

         After several months passed without payment, Superior and Ben Hur filed mechanics' liens on the Project to secure payment of the amounts owed. Subsequently, Ascent purchased lien discharge bonds from Westchester Fire Insurance Company ("Westchester") to remove the liens and enable Ascent to begin selling condominium units. In April 2008, Superior and Ben Hur filed this suit naming Ascent, Corporex, D&M, and Westchester as defendants. Superior and Ben Hur asserted claims against Ascent, Corporex, and D&M for breach of contract, unjust enrichment, breach of express and implied warranties, negligence, negligent misrepresentation, negligent supervision, and promissory estoppel. D&M then filed a crossclaim against Ascent/Corporex for breach of contract and indemnification for all monies owed to Superior and Ben Hur.[5] Ascent/Corporex also filed a crossclaim against D&M alleging breach of contract, negligent performance of contract, constructive fraud and indemnification.

         At trial, D&M disputed whether a written contract with Superior had been agreed upon, and if so, which version of the contract would be enforced. Further, while D&M and Ascent admitted at trial that Superior and Ben Hur had performed extra work, they asserted that the work was within the original scope of the contract. Additionally, D&M argued that the retainage was not owed due to Superior's alleged failure to comply with certain contract provisions.

         After hearing all the evidence, the trial court directed a partial verdict in favor of Superior against Ascent and D&M, jointly and severally, for the unpaid retainage due under the contract, plus pre- and post-judgment interest. The trial court also concluded "as a matter of law that there was an implied contract between [D&M] and Ben Hur. That implied contract would allow Ben Hur to recover from [D&M] for work performed by it on the project if the work had been authorized by [D&M]." The remaining issues were submitted to the jury.

         At the conclusion of the fifteen-day trial, the jury rendered its verdict in less than an hour. The jury's conclusions, each of which was unanimous, were as follows: 1) a contract existed between Superior and D&M (identified at trial as Joint Exhibit #226) to fabricate and erect the structural steel; 2) Superior and Ben Hur performed extra work; 3) the total value of Superior's extra work was $124, 017.26; 4) the total value of Ben Hur's extra work was $284, 295.53; and 5) D&M did not fail to exercise ordinary care in the performance of its obligations under the construction management contract with Corporex.[6]

         Subsequently, the trial court entered a final judgment consistent with the jury's verdict and the directed verdict on the retainage. In its judgment, the trial court rejected Superior and Ben Hur's trial claim that they were a unitary plaintiff, the so-called "Steel Team." The trial court determined that there was no legal basis for entering a judgment in favor of Superior and Ben Hur as a unit, but that the companies needed to be evaluated individually. Accordingly, the trial court awarded $124, 017.26 in damages to Superior for the extra work it performed on the Project. The joint and several judgment was based on contract as to D&M and on unjust enrichment as to Ascent. Further, the trial court determined that $195, 143.40 was due to Superior for the unpaid retainage under its contract with D&M. Again, the award against D&M was based on contract and the award against Ascent on unjust enrichment. As for Ben Hur, the trial court awarded $284, 295.53 for the value of the extra work it performed on the Project. The joint and several judgment was premised on implied contract as to D&M and on unjust enrichment as to Ascent.

         While both Superior and Ben Hur requested an award of attorneys' fees, expenses, and costs, the trial court determined that Superior was the only party entitled to this relief. Superior, as the prevailing party, was due an award of attorneys' fees, expenses, and costs in the amount of $349, 241.70 under the terms of its contract with D&M. The trial court concluded that Ben Hur had no contractual right to an award of attorneys' fees and no other legal grounds for an award of attorneys' fees.

         As to the dispute between D&M and Ascent/Corporex, the trial court concluded that Ascent/Corporex were jointly and severally liable to D&M for all . sums D&M was mandated to pay to Superior and Ben Hur on their contract judgments (including attorneys' fees, costs, and expenses) by virtue of indemnification. Further, the trial court ordered that the judgments entered in favor of Superior and Ben Hur against D&M be stayed until Ascent/Corporex either 1) satisfied D&M's indemnity judgment or 2) satisfied Superior and Ben Hur's judgments for unjust enrichment.

         All parties appealed the trial court's final judgment to the Kentucky Court of Appeals. The Court of Appeals vacated the judgment of the trial court in its entirety and remanded the case for a new trial. Dissatisfied with the rulings of the Court of Appeals, all parties sought and were granted discretionary review. The principal issues before us are:

1. Superior and Ben Hur's unjust enrichment claim against Ascent and Corporex. The Court of Appeals vacated the trial court's unjust enrichment award to Superior and Ben Hur, reasoning that the existence of contractual remedies barred an equitable remedy.
2. Superior's breach of contract claim against D&M. In vacating the judgment of the trial court, the Court of Appeals agreed with D&M that the jury should have been explicitly instructed as to the "pay-if-paid" provisions in the D&M/ Superior contract. Those provisions mandated that Superior was entitled to payment from D&M when D&M received payment from Corp'orex. In the appellate court's view, "[t]he jury should have been instructed to determine if D&M's obligation to pay Superior ever arose, and thus if D&M was in breach, or if D&M was not obligated to pay Superior Steel until it first received payment from Corporex, and thus it did not breach the contract."[7]
3. The attorneys' fee award to Superior. The vacating of the trial court's breach of contract judgment in favor of Superior on the D&M/ Superior contract also resulted in the Court of Appeals reversing the award of prevailing party attorneys' fees and costs to Superior Steel from D&M.[8]
4. D&M's indemnification claims against Ascent/Corporex. The Court of Appeals vacated the portion of the trial court's order which held Ascent/ Corporex were responsible to D&M under an indemnification theory for the extra work and attorneys' fees awards. The appellate court held that D&M lacked a legal right to indemnification from Ascent/Corporex under either a contractual or common law theory.
5. Corporex's cross-claims against D&M. At trial, Corporex had raised cross-claims for breach of contract and negligence against D&M alleging that D&M failed to adequately oversee and manage the construction of the Project. However, the trial court decided to submit only the negligence claim to the jury, concluding that the claims were mutually exclusive. The Court of Appeals disagreed, determining that these were two separate and distinct claims and both should have been presented to the jury. Additionally, the Court of Appeals concluded that the trial court's negligence instruction was erroneous as it assumed Corporex was responsible for the disputed extra work.

         ANALYSIS

         I. The Court of Appeals Erred by Reversing the Trial Court's Judgment Against Ascent for Unjust Enrichment.

         The trial court awarded Superior and Ben Hur judgment against Ascent under a claim for unjust enrichment for the extra work performed on the forces table/design load increase, the roof edge condition, and the roof tip as well as the unpaid retainage amount owed under Superior's contract with D&M. Ascent/Corporex maintain that the Court of Appeals properly reversed this judgment as the chain of contracts on this construction project, [9] including specifically the contract between Superior and D&M, bars any equitable claim for unjust enrichment. We disagree, and begin our analysis with unjust enrichment.

         To recover on a claim of unjust enrichment a plaintiff is required to "prove the following three elements: '(1) benefit conferred upon defendant at plaintiffs expense; (2) a resulting appreciation of benefit by defendant; and (3) inequitable retention of [that] benefit without payment for its value."' Furlong Dev. Co. v. Georgetown-Scott Cty. Planning & Zoning Comm'n, 504 S.W.3d 34, 39-40 (Ky. 2016) (quoting Jones v. Sparks, 297 S.W.3d 73, 78 (Ky. App. 2009)). Because unjust enrichment is rooted in equity and "law trumps equity" Bell v. Commonwealth, 423 S.W.3d 742, 748 (Ky. 2014), courts frequently note that "unjust enrichment is unavailable when the terms of an express contract control." Furlong Dev. Co., 504 S.W.3d at 40 (citing Sparks Milling Co. v. Powell, 283 Ky. 669, 143 S.W.2d 75, 76 (Ky. 1940); and Bates v. Starkey, 212 Ky. 347, 279 S.W. 348, 350 (Ky. 1926)). A leading Court of Appeals decision, Codell Constr. Co. v. Commonwealth, 566 S.W.2d 161 (Ky. App. 1977), illustrates this basic principle.

         In Codell, a road contractor won a bid to complete a construction project for the Highway Department. Id. at 163. In making its bid, the contractor relied upon information provided by the Highway Department concerning the amount of rock to be excavated as part of the project. Significantly, the contract between the contractor and the Highway Department included an' express disclaimer regarding the accuracy of this information. After starting work on the project, the contractor determined that additional work was necessary and requested additional compensation. Id. The Highway Department refused to pay more than the contract amount, and the contractor initiated a lawsuit. Following the circuit court's grant of summary judgment for the Highway Department, the Court of Appeals affirmed. After explaining that the disclaimer precluded extra compensation under the contract, the Court of Appeals stated that "[t]he doctrine of unjust enrichment has no application in a situation where there is an explicit contract which has been performed." Id. at 165 (citing Ashton Contractors & Eng'rs, Inc. v. State 454 P.2d 1004 (Ariz. 1969)). In the appellate court's view, the contractor had entered into a bad bargain and the court had no "basis to salvage the operation." Id.

         In the case at bar, the jury determined that the relationship between D&M and Superior was governed by contract. Accordingly, had the trial court permitted Superior to recover against D&M under a claim of unjust enrichment, long-standing precedent makes clear that judgment would not be sustained by this Court. Ascent/Corporex maintain that the same result applies to them even though they have no contractual relationship with either Superior or Ben Hur because the controlling legal principle is that where a party has an "adequate legal remedy available" it bars unjust enrichment entirely regardless of whether the party against whom unjust enrichment is sought is the same party against whom the legal remedy lies. We largely agree with Ascent/Corporex's statement of the general principle but reject the conclusion that its application precludes an unjust enrichment award in this case.

         As Ascent/Corporex acknowledge, their desired outcome is premised on Superior and Ben Hur having an adequate remedy elsewhere, and in fact they have no such remedy. In short, they do not have a viable contractual remedy against D&M because Ascent/Corporex have not paid D&M for the extra steel work, relieving D&M of any immediate obligation to pay Superior (and consequently Superior paying Ben Hur) for the work performed for Ascent/ Corporex's benefit.[10] As explained more fully below, the D&M/ Superior contract contains "pay-if-paid" provisions wherein D&M's obligation to pay Superior is premised on having first received payment from "the Owner, " i.e., Ascent/Corporex. Additionally, the D&M/Superior contract, the form of which Corporex had authority to approve under Section 3.8 of the Corporex/ D&M contract, specifically states: "The Subcontractor [Superior] hereby acknowledges that it relies on the credit of the Owner [Ascent/Corporex], not the Contractor [D&M] for payment of Subcontract Work." So there is a "chain of contracts" as Ascent/Corporex repeatedly note but there is also undeniable "contractual gridlock" that traces back to Ascent/Corporex's failure to pay for work received. Unless and until Ascent/Corporex pay D&M, Superior has no real contractual remedy.

         The tendency of courts and litigants to disfavor unjust enrichment claims when contracts abound, as in construction disputes such as this one, is fairly commonplace but as the drafters of the Restatement (Third) of Restitution and Unjust Enrichment aptly state:

Judicial statements to the effect that "there can be no unjust enrichment in contract cases" can be misleading if taken casually. Restitution claims of great practical significance arise in a contractual context, but they occur at the margins, when a valuable performance has been rendered under a contract that is invalid, or subject to avoidance, or otherwise ineffective to regulate the parties' obligations. Applied to any such circumstance, the statement that there can be no unjust enrichment in contract cases is plainly erroneous.

Id. at § 2, cmt. c (2011) (emphasis supplied). As Superior and Ben Hur note, the Restatement specifically addresses the situation where a party is uncompensated under a contract with a third party for a performance that ultimately benefits the defendant, the scenario presented here.

If the claimant renders to a third person a contractual performance for which the claimant does not receive the promised compensation, and the effect of the claimant's uncompensated performance is to confer a benefit on the defendant, the claimant is entitled to restitution from the defendant as necessary to prevent unjust enrichment.

Id. at § 25(1). ("Uncompensated Performance Under Contract with Third Person"). Here, Superior and Ben Hur indisputedly rendered a contractual performance to D&M, conferring a substantial benefit on Ascent/Corporex, for which Superior and Ben Hur have never been paid.[11]

         Courts in other jurisdictions have not hesitated to allow subcontractors to recover from property owners that receive the benefit of their work provided that the owner has not already paid the general contractor for the exact same work. Thus, in Nation Elec. Contracting, LLC v St. Dimitrie Romanian Orthodox Church, 74 A.3d 474, 481 (Conn. App. 2013), an electrical contractor recovered judgment on an unjust enrichment theory against a church that had received the benefit of extra electrical work beyond the scope of the original contract but never paid the contractor or subcontractor for it. Similarly, in Zaleznik v. Gulf Coast Roofing Co., 576 So.2d 776, 778-79 (Fla. App. 1991), three subcontractors recovered judgments against a homeowner for unjust enrichment based on the work they performed for which the homeowner had never paid the contractor or the subcontractors.

         Ascent/Corporex cite competing authority including several cases addressing New York law, which limits a subcontractor to its contractual recovery against the contractor and precludes recovery against the owner unless the owner expressly agreed to be held liable to the subcontractor. See, e.g., A&V425LLC Contracting Co. v. RFD 55th St. LLC,15 Misc.3d 196, 830 N.Y.S.2d 637 (N.Y. Sup. Ct. 2007). Kentucky has no such rule. Nor do we have case law that allows unjust enrichment recovery against the owner only where the ...


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