Crest Inc. v. Costco Wholesale Corp.

Citation: 115 P.3d 349Docket: 53364-9-I

Court: Court of Appeals of Washington; July 5, 2005; Washington; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Damages for breach of contract are those that arise naturally from the breach or that both parties contemplated as a probable result when the contract was made. The trial court found that Crest Incorporated (Crest) materially breached its contract with Costco Wholesale Corporation (Costco) by failing to properly cure a cement slab, which precluded Costco from realizing the benefit of its bargain. Consequently, the trial court's ruling that Crest was liable for the removal and replacement of the defective concrete slab was affirmed.

Regarding attorney fees, the lodestar method is the appropriate approach, which involves multiplying a reasonable hourly rate by the number of hours expended on the lawsuit. The trial court limited fee recovery based on customary charges in Whatcom County but did not adequately articulate its reasoning, leading to an abuse of discretion. As a result, the award of attorney fees was reversed and remanded for proper evaluation.

The case centers on a subcontract between Barclay Dean Construction (BD) and Crest for concrete work on Costco's store expansion. After Crest poured the phase II concrete slab, BD determined it was defective and required its removal. Crest, despite knowing the contract prohibited water addition to the concrete, added water to at least one truckload and failed to employ the required early entry saw cut method for control joints, which contributed to the slab's cracking.

Crest was required by contract to align control joints and ensure high workmanship standards, but failed to do so, resulting in six cracked concrete panels—ten times the industry standard. BD rejected the slab and demanded a replacement rather than repairs, despite Crest's argument that the slab met strength standards and could be fixed. A disagreement arose over whether Crest was obligated to water cure the slab, which Crest did not do, using a chemical sealer instead. Crest acknowledged deviations from the contract but contended these did not affect the slab's serviceability or appearance. Following unsuccessful negotiations, Crest replaced the slab but BD withheld final payment, citing the need for contractually required releases. Crest then filed a lawsuit for breach of contract and lien foreclosure, claiming damages of approximately $85,000. The trial court awarded Crest $45,368.61 for the unpaid contract balance but ruled that Crest's failure to properly cure the slab constituted a material breach, denying damages for the replacement. The court also granted BD 90% of its attorney fees, totaling $108,148.80, leading to a net judgment of $62,780.19 for BD after offsets. Crest appealed, arguing that the trial court wrongly concluded it materially breached the contract and that BD was justified in demanding the slab's replacement.

Crest contended that the trial court incorrectly determined the contract mandated a water cure for the original slab. However, evidence demonstrated that specification sections 3320 and 3300 are interrelated and govern the slab's pouring, with section 3320 referencing section 3300. The contract required adherence to the project specifications, which included the water cure, but Crest did not perform this process. Although Crest argued there was no material defect in the slab and insufficient evidence of improper curing, expert testimony from Eugene Dale (BD's expert) and Alan Kramer (Crest's expert) indicated that proper curing, whether by water or chemical means, was not conducted. Conflicting evidence existed regarding the slab's condition, but testimony confirmed that the absence of curing necessitated removal. Crest did not dispute the finding that a lack of cure would render the slab unacceptable in the cement trade. Dale's assessment indicated that even with strength tests exceeding specifications, the slab's rapid drying led to cracking, undermining its durability. Testimony also revealed that cracks and their maintenance costs justified replacing the slab, which did not meet industry standards. Crest's claim that BD's superintendent, Dale Cullivan, did not support slab replacement was unsubstantiated; Cullivan had reported the slab's poor quality but lacked the authority to reject it. The trial court's finding that the slab was improperly cured is upheld.

The trial court upheld its determination that BD did not breach the contract by requiring Crest to remove and replace a defective slab without additional payment. Crest argued for damages based on a lesser repair, but the court found that the original slab did not meet contract specifications and that removal and replacement were the appropriate remedies for the defect. Crest failed to demonstrate that its proposed repair would be adequate, as evidence indicated it would not provide the necessary durability and would incur substantial long-term maintenance costs.

The trial court's ruling was consistent with Section 344(a) of the Restatement Second of Contracts, which emphasizes protecting the expectation interest of the promisee by ensuring they receive the benefits of the bargain. Crest's reliance on the case of Eastlake Construction Co. v. Hess was rejected; the court clarified that under the contract, defective slabs must be replaced, and there was no evidence of economic waste to support Crest's claims.

Crest also cited cases from other jurisdictions to argue for recovery of replacement costs, but these were distinguishable as they involved products that met or exceeded contractual specifications. The trial court's findings supported that Crest's slab did not meet required standards, validating its decision.

Additionally, the trial court excluded testimony from a BD employee, Robert, regarding a prior defective concrete pour. Crest claimed this was an admission against interest and an exception to hearsay rules. However, the court found the statements were hearsay and lacked sufficient foundation, as there was no proof of Robert's authority to speak for BD. The trial court properly exercised its discretion in excluding this testimony.

Crest contends that the trial court erred by awarding BD 90 percent of its attorney fees, asserting it should be considered the prevailing party. The contract permits attorney fee awards to the prevailing party, as mandated by RCW 4.84.330, which limits discretion to the amount awarded. A prevailing party typically receives judgment in their favor, but in cases of partial victories, the determination hinges on the extent of relief granted. The trial court identified BD as the prevailing party on the significant concrete slab issue, which accounted for 90 percent of trial time, while Crest prevailed on several minor issues. Crest did not contest the factual finding that the concrete slab claim dominated the trial duration, nor did it successfully argue for its own prevailing status. 

In a cross-appeal, BD argues that the trial court abused its discretion by restricting fee awards to the customary hourly rates in Whatcom County. The court's award of $108,148.80 was based on this limitation but lacked a written explanation for the decision. Although the number of hours was undisputed, the reasonableness of the hourly rate was contested. BD acknowledged that local rates are a factor in determining reasonableness but argued that other factors should also be considered. Due to insufficient evidence regarding local and state fee standards, the court requires remand for further evaluation.

Fee decisions are at the trial court's discretion; however, the reviewing court requires that this discretion is based on clear, articulated reasons. In this case, the trial court did not provide an adequate written justification for its fee limitation, leading to a reversal of its fee determination and a remand for a new decision that includes all relevant factors and a written basis for the ruling. Additionally, BD contested the trial court's ruling on prejudgment interest, arguing it was inappropriate due to an unfulfilled contractual condition precedent. The trial court found that Crest had consistently demanded payment for liquidated amounts, which BD withheld, citing the need for a general release form. Despite this, the court noted BD acknowledged the debt in a pretrial stipulation and failed to deposit the owed amount, which would have protected its interests. Consequently, the court concluded that Crest was entitled to prejudgment interest on the withheld amount. The standard for awarding prejudgment interest includes the requirement that the retained funds are liquidated and that the party retaining them has benefited from their use. BD's belief in its right to withhold payment did not negate its obligation, and it could have avoided prejudgment interest by depositing the owed amount with the court. The trial court's decision to award prejudgment interest was not deemed an abuse of discretion. Both parties requested attorney fees for the appeal, with BD eligible for fees upon satisfying RAP 18.1 requirements.

The trial court's decision is partially affirmed and partially reversed, necessitating a remand for a proper assessment of attorney fees. The ruling references various legal precedents and principles, including the loadestar methodology for determining reasonable fees, which incorporates factors from RPC 1.5(a). This includes considerations such as local fee customs, time and labor required, novelty of legal questions, skill level, fee agreement terms, the amount at stake, results achieved, duration of the attorney-client relationship, and the experience and reputation of the attorneys involved. Key case law supporting these determinations is cited.