Hardy Corp. v. Rayco Industrial, Inc.

Citations: 143 So. 3d 172; 2013 Ala. LEXIS 178; 2013 WL 6516391Docket: 1090988 and 1091041

Court: Supreme Court of Alabama; December 12, 2013; Alabama; State Supreme Court

Lead Opinion SummaryLead Opinion Original

EnglishEspañolSimplified EnglishEspañol Fácil

Gambro Renal Products, Inc. engaged The Facility Group, Inc. (TFG) as the general contractor for a facility in Opelika, which TFG subcontracted to Hardy Corporation for specialized piping work. Absolute Welding Services, Inc. (AWS), a subsidiary of Rayco Industrial, Inc., was involved as a sub-subcontractor. AWS submitted a proposal to Hardy for welding that excluded passivation and pure-steam return piping. Due to AWS's inability to secure a performance bond, Rayco submitted a similar offer to Hardy, which included a minor price adjustment for the bond. Hardy then provided a subcontract to Rayco for $813,561, outlining the requirement to install sanitary pharmaceutical piping per specification 15202, which mandates passivation and pure-steam return piping.

As Rayco neared completion of its work, a dispute arose regarding the inclusion of passivation and pure-steam return piping in the subcontract. Rayco contended that its offer's exclusions were not incorporated into the subcontract, while Hardy maintained otherwise. After the disagreement, Hardy refused to pay outstanding invoices from Rayco, prompting Rayco to file a complaint on March 12, 2008, in the Lee Circuit Court against Hardy, Gambro, and other unnamed parties, seeking an accounting, declaratory judgment, contract reformation, and lien perfection, along with claims for breach of contract and unjust enrichment.

Hardy responded by moving to dismiss the claims against it or to transfer the case to Jefferson Circuit Court, citing a forum-selection clause in the subcontract that required legal proceedings to be conducted there. The Lee Circuit Court granted this motion on May 20, 2008. Hardy then answered Rayco's complaint on June 30, 2008, admitting and denying some claims while asserting defenses and counterclaiming for breach of contract due to Rayco's incomplete obligations.

Hardy sought to add Fidelity and Deposit Company of Maryland, Rayco’s surety, as a counterclaim defendant, alleging a breach of the subcontract performance bond, and requested damages, costs, and attorney fees. The trial court approved this addition. Fidelity responded by admitting to the bond but denying Rayco's default and asserting defenses. On September 9, 2008, Rayco amended its complaint to include Travelers Casualty and Surety Company of America, which also asserted defenses against Hardy’s counterclaims. On November 20, 2009, Rayco and Fidelity moved to strike Hardy’s attorney fees claim, citing Hardy's failure to provide requested discovery and identify an expert witness on the reasonableness of those fees. The trial court held a trial on November 25, 2009, and rendered judgment on December 11, 2009. The court found that Rayco had breached a subcontract related to the installation of high purity piping for the Gambro Plant, owed Hardy funds for related additional costs, and that Hardy owed Rayco for certain change orders. The court detailed the evidence, highlighting the negotiation history where Hardy sought a turnkey installation, while Rayco excluded passivation services from its initial offers. Ultimately, Hardy's counteroffer on January 19, 2007, included all necessary procedures for installation, which Rayco understood.

On January 19, 2007, Rayco signed a subcontract that included the passivation work, thereby accepting Defendant Hardy’s counterproposal for a "turnkey" installation. Rayco submitted five change orders that were approved by Hardy, increasing the subcontract amount. However, several other change order requests by Rayco (numbers 1, 3, 4, 5, 6, 9-16, 17, 18, 19, 22, and 23) were denied by Hardy, as they fell within the original scope of work or were already accounted for in the subcontract terms regarding overtime and idle time. Requests 2, 7, 8, 20, and 21 were acknowledged as valid because they were performed at Hardy's request or due to changes in plans that altered Rayco’s scope.

In Hardy’s counterclaim, the court found that the costs for passivation and pure-steam return piping installation were valid charge backs under the subcontract terms. However, five other charge back items were disallowed because they were either outside Rayco's scope or Hardy failed to provide the required 48-hour written notice before having others perform that work. The trial court applied principles from Cook’s Pest Control, Inc. v. Rebar to analyze the contract. It upheld the subcontract's terms, affirming that passivation and pure-steam return piping were part of Rayco’s agreed work, and awarded Hardy damages totaling $108,498.78. This amount was calculated by starting with the subcontract fee of $813,561, adding $200,123 for approved change orders, and $83,040.68 for additional change orders that should have been approved. The total was then reduced by $764,604.90, the undisputed progress payments made by Hardy to Rayco. Additionally, the court established that $170,703.18 was recoverable from TFG pending dispute resolution, without deducting this from Rayco’s contract balance. On December 23, 2009, Hardy sought to alter or vacate the judgment regarding the $83,040.68 award to Rayco.

Hardy requested the amended judgment to include attorney fees and submitted an affidavit justifying the reasonableness of these fees. Hardy sought clarification to remove any implication of breach of subcontract and to negate the 'pay-when-paid' provision, which required compensation to Rayco only after TFG's final payment to Hardy. On January 7, 2010, Rayco filed a post-judgment motion to vacate the trial court's judgment regarding the subcontract, arguing that it constituted a counteroffer and that the contract should specify obligations for passivation and pure-steam return piping installation. Rayco aimed to reduce the damages award by Hardy's costs for these tasks and to assert that Hardy did not meet its burden of proof for these costs, seeking a $210,941 increase in the damages award. On January 11, 2010, Rayco supplemented its motion to vacate the finding that Hardy was entitled to a reimbursement of $12,680 for administrative costs. Rayco and Fidelity opposed Hardy’s post-judgment motion, arguing that Hardy failed to provide expert testimony on attorney fees and timely documentation of attorney work. A hearing on the motions occurred on February 5, 2010, and on March 2, 2010, the trial court denied the motions, stating the attorney fees issue was moot due to lack of evidence presented at trial. On March 22, 2010, Hardy filed a 'motion for partial reconsideration' addressing attorney fees, claiming it had previously provided evidence of legal expenses. Rayco moved to strike this motion, arguing the trial court lacked jurisdiction post-denial of the Rule 59 motion, citing relevant case law. There was no record of a ruling on Hardy's motion. Hardy posted a supersedeas bond on April 13, 2010, and filed an appeal, while Rayco filed a cross-appeal on April 23, 2010.

Hardy appeals the trial court's decisions on three issues: 1) the adjustment of damages related to 'disputed change orders' that the court determined Hardy should have approved; 2) the court's omission of Hardy's 'requested' attorney fees; and 3) the failure to apply the subcontract's pay-when-paid provision. In a cross-appeal, Rayco raises four issues, contesting the trial court's conclusions that: 1) the subcontract was the enforceable contract; 2) the subcontract constituted a counteroffer; 3) Hardy provided sufficient evidence for the costs of passivation and pure-steam return piping installation; and 4) Hardy’s extra administrative expenses should offset Rayco's damages.

The standard of review indicates that when factual evidence is presented ore tenus, the trial court's findings hold a presumption of correctness and will only be overturned if clearly erroneous or unjust. The primary issue is whether an enforceable contract existed, which Rayco argues was established before the January 19, 2007, subcontract. Rayco cites two written proposals and related discussions as evidence of a prior agreement, claiming the January subcontract merely memorialized their existing contract.

Conflicting testimonies arose regarding the acceptance of terms, with Rayco asserting it would not perform certain tasks and Hardy insisting on an all-inclusive contract. The trial court concluded that the January 19 subcontract defined the parties' obligations and, due to the ore tenus evidence, this conclusion was not deemed clearly erroneous or unjust.

Rayco also disputes the trial court's classification of the subcontract as a counteroffer, arguing that a binding contract was formed by January 2, 2007. The court's reasoning, based on established principles of negotiation and counteroffers, led to the conclusion that the January subcontract was indeed a counteroffer accepted by Rayco.

An agreement process begins with one party proposing specific terms, which the other party counters with different terms. This counter-proposal is not considered a rejection of the initial offer but must be legally operative as an offer itself. A counter-offer requires clear expression of willingness to contract on identifiable terms, which does not necessitate full expression of all terms in one communication; prior exchanges can inform the counter-offer. If the original offeror accepts the counter-offer, a contract is formed, rendering the original offer inoperative except where referenced in the counter-offer. Acceptance may be shown through performance rather than explicit agreement, and proceeding with the counter-offer negates any breach claims related to the original offer.

In this case, the trial court found that a subcontract constituted a counter-offer accepted by Rayco, supported by evidence showing Hardy did not accept Rayco's terms but proposed alternative terms involving specific performance tasks. Conflicts in testimony about contract negotiations were for the trial court to resolve. Rayco argued against liability for costs incurred due to changed specifications for passivation and PSR piping, claiming it could only be liable for original specifications. However, Rayco failed to provide adequate evidence or argument regarding cost differences between original and amended specifications in the trial court.

Rayco did not contest Hardy’s evidence regarding costs, leading to the conclusion that the trial court did not err. Rayco challenged the trial court's deduction of $12,680 from its damages for the bond premium Hardy paid to bond off Rayco’s lien. Rayco argued it had a valid lien for its work, but evidence showed that Hardy was entitled to withhold payments pending resolution of disputes and had secured a payment bond that would remedy any funds owed to Rayco. Testimony from Hardy’s project manager indicated that the bonding was necessary due to Rayco's lien, confirming the trial court's decision to award the premium cost to Hardy.

Regarding Hardy's appeal, it contested the trial court's adjustment of Rayco's damages by $83,040.68 for disputed change orders. Hardy claimed Rayco's extra work was within the subcontract's scope and that claims were improperly submitted without prior written approval. However, the trial court assessed the evidence and testimony related to 23 change orders, determining that only 5 were improperly denied, as they resulted from changes requested or necessitated by Hardy. The appellate court upheld the trial court's findings, noting it does not reweigh evidence or resolve conflicts in testimony, thus confirming the trial court's discretion in ruling on the change orders.

Hardy argues that Rayco waived its right to claim damages for extra work through the lien waivers included in three pay applications, which were accepted as trial evidence. The lien-waiver language explicitly states that upon payment for the requisition, Rayco relinquishes all liens and claims related to work performed up to that point, and asserts there are no additional claims unless specified. Citing Southland Quality Homes, Inc. v. Williams, the court notes that the unambiguous terms of the waiver dictate its legal effect. Rayco’s pay applications requested payment for change orders 2, 7, 8, 20, and 21, which Hardy did not pay. Since the lien waivers were contingent upon payment, and given that Hardy failed to pay the underlying invoices, the trial court correctly awarded Rayco the payment for the change orders.

Regarding Hardy’s request for attorney fees, the trial court has discretion to award or deny such fees, and its decision can only be overturned upon a clear abuse of discretion. Hardy requested attorney fees in its counterclaim, but Rayco and Fidelity moved to strike this claim due to Hardy's failure to comply with discovery requests. The court did not rule on the motion before the trial, and the only reference to attorney fees during the trial was brief and contested. Hardy did not bring up the attorney fees issue again, and the final judgment did not address the request. Subsequently, the trial court denied Hardy’s post-judgment motion, stating that the attorney fees issue was moot due to the absence of evidence presented during the trial regarding the requested fees, and that Hardy’s post-trial affidavit was not properly submitted.

The trial court exceeded its discretion by denying Hardy's request for attorney fees without considering evidence or argument after determining whether Rayco breached the contract. The court had previously agreed to allow Hardy to present such evidence following its breach determination. Therefore, the trial court's judgment regarding attorney fees is reversed.

Regarding Hardy's claim that the trial court failed to enforce the 'pay-when-paid' provision of the subcontract, it was determined that Hardy needed to receive final payment from TFG before being required to pay Rayco. The subcontract outlined specific conditions precedent for payment, including that the contractor must receive final payment from the general contractor and that the subcontractor must provide necessary documentation. The trial evidence indicated that TFG owed Hardy $170,703, but it was not proven that this amount was for work performed by Rayco, which means Hardy did not establish the applicability of this provision.

In summary, Rayco's cross-appeal is affirmed, while Hardy's appeal is affirmed in part and reversed in part, leading to a remand for further proceedings consistent with these findings. The trial court's implicit finding that Rayco owed no damages to Hardy also indicated that Fidelity, Rayco's surety, had no liability. The document notes a significant expenditure for project requirements and mentions the dismissal of Gambro from the action without affecting claims against Fidelity. The court acknowledges an administrative delay in issuing these decisions.

The trial court determined it lacked jurisdiction over Hardy's successive postjudgment motion, as Hardy was not aggrieved as per Ex parte Dowling. There was no new judgment, and the issue of attorney fees had already been addressed in Hardy's first postjudgment motion, making a timely appeal the appropriate course of action. The case is distinguished from Buckmasters, Ltd. v. Action Archery, Inc. due to differing circumstances surrounding contract formation. In Buckmasters, the court found that misleading conduct by one party allowed for rescission, whereas here, conflicting evidence existed regarding Hardy's agreement on Rayco's responsibilities in the contract. The trial court's factual determinations, based on ore tenus evidence, were supported by reasonable inferences, and its resolution of disputed issues is upheld unless found to be clearly erroneous or unjust.