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Harris, Inc., An Idaho Corporation v. Foxhollow Construction & Trucking

November 2, 2011

HARRIS, INC., AN IDAHO CORPORATION, PLAINTIFF-COUNTERDEFENDANT-APPELLANT,
v.
FOXHOLLOW CONSTRUCTION & TRUCKING, INC., AN IDAHO CORPORATION, L.N. JOHNSON PAVING, LLC, A LIMITED LIABILITY COMPANY, DEFENDANTS-RESPONDENTS, AND DAVID EGAN, AN INDIVIDUAL, FERGUSON FARMS, D/B/A FERGUSON TRUCKING, D. KYM FERGUSON, AN INDIVIDUAL, AND MICHAEL FERGUSON, AN INDIVIDUAL, DEFENDANTS-COUNTERCLAIMANTS- RESPONDENTS.



Appeal from the District Court of the Seventh Judicial District of the State of Idaho, Jefferson County. Honorable Darren B. Simpson, District Judge.

The opinion of the court was delivered by: J. Jones, Justice.

Idaho Falls, August 2011 Term

2011 Opinion No. 109

Stephen W. Kenyon, Clerk

The judgment of the district court is affirmed in part and vacated in part.

This case involves an action for breach of contract and attendant claims of breach of the covenant of good faith and fair dealing, unjust enrichment, fraud, and indemnification. After a bench trial, Harris, Inc. (Harris), the plaintiff, lost on all claims. We affirm the district court's judgment, except for its attorney fee awards, which we vacate.

I. BACKGROUND

In early 2002, David Egan, a business manager for Foxhollow Construction and Trucking, Inc.*fn1 (Foxhollow), met with Wayne Johnson (Wayne) of L.N. Johnson Paving, LLC (Johnson) to discuss a bid for excavation and paving work for a new public high school in Fremont County (the Fremont Project). Egan wanted to bid on the Fremont Project on behalf of Foxhollow, but Foxhollow lacked the requisite public works license. Johnson had a public works license for contracts up to $500,000.00. Wayne thought Johnson's license could cover Foxhollow if Johnson and Foxhollow submitted a single bid in Johnson's name. So, Egan submitted a subcontract bid in Johnson's name to Harris, a general contractor, for the Fremont Project's excavation, filling, grading, culvert, and asphalt paving work. Wayne and Egan planned for Johnson to handle the paving work and for Foxhollow to do the excavation, filling, grading, and culvert work.

Foxhollow and Johnson had a relationship with Harris before the Fremont Project. Both companies worked on the Midway Middle School project in Rigby under an arrangement similar to the one they planned for the Fremont Project. Foxhollow also was working independently for Harris on a separate contract for a water and sewer project in Jefferson County (the Jefferson Project). Johnson had worked independently on the Jefferson Project as well.

Johnson was the successful bidder for Harris' paving and excavation subcontract on the Fremont Project. Egan, Wayne, and Scott Harris (Scott), acting for Harris, met at Harris' offices in Chubbuck to discuss the bid and the subcontract. Egan and Wayne, despite placing a single bid, asked Scott to write out separate contracts for Foxhollow and Johnson--the "site work portion" in Johnson's name, and the "structural excavation of the building" in Foxhollow's name. In mid-June 2003, Fremont County Joint School District awarded Harris the construction contract for the Fremont Project. Harris started work on the Fremont Project soon thereafter. In late June 2003, Egan, acting on Johnson's behalf, signed a contract with Harris for excavation, filling, grading, culvert, and paving work on the Fremont Project. Under that contract, Harris agreed to pay Johnson $409,363.00, much of which was earmarked for Foxhollow's excavation, filling, grading, and culvert work. Demian Egan, as Foxhollow's president, signed a separate contract with Harris in July 2003 for $245,705.00 for excavation, filling, grading, and culvert work. The ultimate contractual arrangement and division of work between Foxhollow and Johnson is unclear because both companies had written agreements describing much of the same work.*fn2 But, it is clear that Harris paid Johnson for work on the Fremont Project and Johnson forwarded those payments to Foxhollow. In addition, Harris paid some of Foxhollow's payroll to avoid Foxhollow's potential mismanagement of its cashflows.*fn3 Egan was one of the Foxhollow employees that Harris paid directly.

Egan requested progress payments for billing, payroll, and other incurred expenses, near the end of each month while Foxhollow and Johnson were involved with the Fremont Project. Melvin Voss, a Foxhollow employee, kept track of the rented equipment Foxhollow used on the Fremont Project. Foxhollow's equipment suppliers sent invoices to Voss. In turn, Voss submitted the invoices to Tony Robles, a Harris employee. Harris would not make progress payments until all materialmen and equipment suppliers were paid. Harris issued payments based on communications with Egan and Voss.

In early August 2002, Harris agreed to a change order, which added $16,500.00 to Johnson's subcontract. With this change, Johnson's subcontract totaled $425,863.00. Then, in September 2002, Harris agreed to a second change order, which added $41,983.20 to Johnson's subcontract, for a new total of $467,846.20. Shortly after the second change order, in mid- September 2002, Scott received letters from two equipment suppliers demanding payment for rental equipment Foxhollow used on the Fremont Project. Pro-Rentals & Sales, Inc. demanded $7,781.01*fn4 and Western States, Inc. demanded $51,000.00. At the same time, Foxhollow owed Ferguson Farms, in which Kym Ferguson (Kym) was a partner,*fn5 about $75,000.00 for leased equipment.

Neither Johnson nor Foxhollow notified Harris of any accounts owing for any rental equipment. In late September 2002, Scott did receive a letter from Foxhollow's lawyers stating that Foxhollow had paid all equipment suppliers except Western States and that Foxhollow was not in default on its obligations on the Fremont Project. Harris, relying on this letter, sent no payment to Pro-Rentals. Rather, Harris issued another round of payroll checks to Foxhollow employees for work on the Fremont Project. Then, just one week later, on September 27, 2002, Scott sent a letter to Wayne notifying him that Johnson and Foxhollow were in default on the Fremont Project. Scott apparently proposed a schedule to cure the default. Johnson never responded to Scott's letter. In late September 2002, Ferguson Farms took its equipment off the Fremont Project. The trial court was unable to discern which party, Foxhollow or Johnson, defaulted on specific aspects of the agreement because the contracts with Harris had no clear division of work. Johnson itself did not perform any work on the Fremont Project. In early October 2002, Scott and Kym agreed that Ferguson Farms would return Ferguson's equipment to the Fremont Project and Harris would pay Ferguson Farms directly, rather than through Foxhollow. Ferguson Farms worked on the Fremont Project for the most part in October 2002. Harris paid Ferguson Farms for work in March 2004, after Ferguson Farms threatened Harris with a lawsuit.

In mid-December 2002, despite the apparent default, Harris sent Johnson a check, payable to Johnson and L&M leveling, for $8,000.00 for some of Foxhollow's work on the Fremont Project. Johnson's lawyer returned the check with a letter denying that Johnson ever had a contract with Harris for the Fremont Project and denying any knowledge of L&M Landleveling.*fn6

Harris subsequently brought this action, alleging that (1) Foxhollow, Johnson, and the Fergusons (Kym, Michael and Ferguson Farms) breached their subcontracts with Harris; (2) the defendants were unjustly enriched as a result of their unsatisfied obligations; (3) the defendants breached duties of good faith and fair dealing owed to Harris under the contracts; (4) the defendants made fraudulent representations to Harris; and (5) Harris is entitled to indemnification from Foxhollow and Johnson for an earlier judgment entered against Harris. Egan filed a counterclaim for indemnification from Harris. The Fergusons filed a counterclaim alleging that Harris breached an equipment rental contract that Harris had with them.

The district court dismissed Foxhollow as a party for lack of proof of notice because there was no indication that Foxhollow was ever served. After a bench trial, the court held that Harris had abandoned its claims against the Fergusons for breach of contract, breach of the covenant of good faith and fair dealing, and indemnification. The court granted Harris' motion for "directed verdict" as to Egan's counterclaim, and it granted Harris summary judgment as to the Fergusons' counterclaim. Finally, the court concluded that Harris failed to prove any of its remaining claims against any of the defendants and therefore was not entitled to relief. The court denied Harris' motion for a new trial. The court also awarded fees and costs to Johnson and the Fergusons. Harris timely appealed.

Harris now argues that the district court: (1) erred in concluding Harris failed to prove contract damages; (2) erred in concluding that no defendant was unjustly enriched; (3) erred in concluding that no defendant is liable for fraud; (4) erred in concluding that Harris was not entitled to indemnity; (5) abused its discretion in denying Harris' motion to amend findings and conclusion; (6) abused its discretion in granting fees and costs to Johnson and the Fergusons; and (7) abused its discretion in denying Harris' motion for a new trial.

II. DISCUSSION

Although Harris asserts numerous claims of error, the main thrust of its argument is that the district court erred in concluding the evidence it submitted regarding damages was insufficient. The district court observed that Harris was likely entitled to damages against Johnson for breach of contract but that Harris had failed to adequately establish any specific amount of damages attributable to Johnson's breach. We find no error in the district court's conclusion.

A. Standard of Review.

We review a district court's bench trial decisions to determine "whether the evidence supports the findings of fact, and whether the findings of fact support the conclusions of law." Independence Lead Mines v. Hecla Mining Co., 143 Idaho 22, 26, 137 P.3d 409, 413 (2006). This Court will set aside findings of fact only when clearly erroneous. Id. We will not disturb findings supported by substantial and competent evidence, "even if the evidence is conflicting." Id. "It is the province of the district court to weigh conflicting evidence and testimony and to judge the credibility of the witnesses." Thorn Springs Ranch, Inc. v. Smith, 137 Idaho 480, 484, 50 P.3d 975, 979 (2002). We, therefore, liberally construe a trial court's findings "in favor of the judgment entered." Id. (internal quotation marks omitted). When it comes to matters of law, however, we are not bound by the trial court's conclusions; this Court is free to "draw its own conclusions from the facts presented." Id.

B. The district court did not err in concluding that Harris failed to prove contract damages.

1. Harris failed to prove contract damages against Johnson.

The district court concluded that Harris and Johnson had a contract for the Fremont Project and that the contract included an implied covenant of good faith and fair dealing. The court determined that Johnson failed to finish its work under its contract and therefore breached. The court also determined that Johnson breached the implied duty of good faith because Johnson claimed that no contract for the Fremont Project ever existed. At trial, it was undisputed that Harris suffered damages as a result of Johnson's failure to perform. But the court found Harris' evidence too speculative to attribute any amount of damages to Johnson.

Scott testified that Harris incurred a cost of "around $147,000.00" to finish the Fremont Project paving after Johnson breached. Harris also supported its damage claim with a document entitled "Job Cost Ledger - Financial Analysis." The district court found that even though the ledger does list payments to Johnson, Foxhollow, and Egan, there are no dates to indicate when payments were made. The court also noted that the ledger shows the Johnson subcontract as being only 63% complete, "despite the fact that the 'data date' was December 31, 2003." The court acknowledged that Harris submitted a "Continuation Sheet," which Harris claimed evidenced its damages, but the court observed that the Continuation Sheet was for work completed through August 31, 2002. Thus, the court concluded that Harris did not prove how much it spent to complete Johnson's work. The court noted also that Harris did not offer any "third-party invoices of labor, supplies or materials needed to finish the Jo[h]nson subcontract." Accordingly, the court held that Harris failed to prove any damages suffered because of Johnson's breach and therefore was not entitled to recover.

On appeal, Harris argues that its evidence did prove damages. First, Harris contends that the Continuation Sheets, when coupled with Scott's testimony, imply that Harris paid Johnson for work that Johnson never performed. Harris also asserts that a number of documents it introduced in evidence, when viewed together, prove damages. Harris further attributes the settlement payment it made to the Fergusons in March 2004 to Johnson's breach. Harris also argues that a money judgment it paid Pro Rentals because of unpaid rental equipment was due to Johnson's breach. Finally, Harris contends that Scott's testimony as to Harris' damages was not speculative because it was based on his personal knowledge. All of this evidence, according to Harris, "clearly show[s] several examples of damages [Harris] incurred." At oral argument, counsel for Harris stated that in a motion in the district court he attempted to "step the court through what . the evidence showed as to the precise amounts of damages." And Harris' counsel tried to explain to the Court just how each of those documents added up to prove damages.

At trial, Johnson denied ever making a contract with Harris, but in this Court Johnson apparently concedes that a contract existed or, at least, did not dispute the district court's conclusion in that regard. Johnson only argues that Harris failed to prove damages with any sort of accuracy. Johnson focuses on the imprecise language Scott used to describe Harris' damages after Johnson's breach. Johnson also reiterates the district ...


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