Acker Construction, LLC v. Tran

Citations: 396 S.W.3d 279; 2012 Ark. App. 214; 2012 WL 834764; 2012 Ark. App. LEXIS 318Docket: No. CA 11-610

Court: Court of Appeals of Arkansas; March 14, 2012; Arkansas; State Appellate Court

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Acker Construction, LLC, appeals a judgment from the Scott County Circuit Court awarding Hanh Billy Tran $68,307 for repairs to seven chicken houses and lost profits due to construction delays. Acker raises four issues on appeal: 1) the trial court improperly allowed testimony from an expert witness, previously hired by Acker, regarding the alleged defects in the chicken houses; 2) the evidence for lost-profit damages presented by Tran was insufficient; 3) the court abused its discretion in denying Acker's motion for a new trial, arguing the jury's repair cost verdict lacked evidentiary support; and 4) the trial court incorrectly barred Acker from introducing evidence of settlement negotiations. The appellate court affirms the lower court's decision.

In September 2005, Acker entered into two contracts to build the chicken houses for Sharon and Rory Wadkins. One contract covered four houses for $390,340, with structured payment draws and a final payment of $39,032. The second contract was for three houses at $292,755, with similar payment terms. Both contracts included a clause limiting Acker's liability for consequential damages from defects. In November 2005, the Wadkins assigned their interests in the contracts to Tran, who later withheld final payments, claiming Acker's performance was defective.

Acker filed a lien notice in August 2006 and subsequently sued Tran for the unpaid amount. Tran counterclaimed for breach of contract, alleging Acker's delays and defects in construction, including inadequate insulation, improper construction per engineering drawings, and various repair needs like a leaking roof and damaged doors, seeking damages for repair costs and lost income.

Acker had consulted an expert, Clinton Holland, whose repair estimate was $34,716.15. Although Acker initially engaged Holland, they later chose not to call him as a witness. After Tran subpoenaed Holland, he declined to attend but sent his estimate via facsimile without further communication. Acker sought to exclude testimony on lost profits, asserting such damages were speculative and classified as consequential, which they claimed they were not liable for under the contracts.

Appellee claimed that the lost profits sought were not consequential damages but rather the natural and proximate result of appellant’s breach of contract. He asserted that Sharon Wadkins would testify she informed appellant’s salesman, Henry Quinn, that she would only contract with appellant if four chicken houses were built first, allowing her to generate income while the remainder were completed. Both he and Wadkins would provide specific testimony regarding the calculation of lost-profit damages to avoid speculation. Appellant filed a second motion in limine to exclude Clinton Holland’s testimony, citing privilege under Arkansas Rule of Civil Procedure 26(b)(4)(B), but appellee countered that the rule was inapplicable since Holland's identity was known. During the trial, the court denied the motions in limine and excluded evidence of settlement negotiations. Testimonies were presented from various witnesses for both parties, including engineers and loan officers. Appellant's motion for a directed verdict on lost-profit damages was denied, and the jury returned a verdict awarding appellant $0. However, they found in favor of Hanh Billy Tran against Acker Construction, awarding $136,614.00 in total damages, which included $34,716.00 for repair costs and $33,591.00 for lost profits. Tran was instructed to pay Acker Construction $68,307.00 as an offset for a lien release. The net judgment for Tran was $68,307.00, with interest accruing at 6% per annum until paid.

Acker Construction's lien against Hanh Billy Tran is declared void and set aside. The appellant filed a motion for judgment notwithstanding the verdict (JNOV) and a new trial, both denied by the trial court, prompting a timely appeal. The appellant claims the court erred by allowing the appellee to call Holland as a witness, arguing it circumvented the privilege between a lawyer and a consulting expert under Arkansas Rule of Civil Procedure 26(b)(4)(B). The court held that this rule did not apply since the appellant voluntarily disclosed Holland as an expert and allowed him to inspect the appellee's property, waiving any potential privilege. Waiver is defined as the intentional relinquishment of a known right, and the court noted that the appellant cannot object to actions they induced or consented to.

Furthermore, Rule 26(b)(5) concerning inadvertent disclosures was deemed inapplicable, as the disclosure was not accidental. Even if Rule 26(b)(4)(B) were relevant, the appellee satisfied the exception for discovery due to exceptional circumstances, as the appellee had unsuccessfully sought other expert opinions. The trial court ensured the jury was not aware of the appellant's prior choice not to call Holland as a witness, affirming that no abuse of discretion occurred.

In the second appeal point, the appellant contends that the trial court improperly allowed evidence of lost profits, arguing that such damages were consequential and only applicable if within the parties' reasonable contemplation, which the appellant claims was not the case due to the lack of an agreed completion date. The appellant believes the court should have granted a directed verdict or JNOV based on this argument.

Appellant argues that appellee's evidence for lost-profit damages is insufficient, citing speculation in calculations, the novelty of the business project, and the inadequacy of the one-year timeframe for profitability projections. However, the court disagrees, emphasizing that a directed-verdict motion evaluates evidence sufficiency, with substantial evidence being that which compels a conclusion without speculation. The appellate review favors the party that prevailed in the lower court and defers to the jury's findings unless there is no reasonable basis to support the appellee's claims. Evidence indicated that the parties agreed to complete four houses first, establishing a factual question about contract formation and intent. Testimony from Sharon Wadkins revealed her insistence on this agreement to secure income from the initial four houses, with her experience in similar transactions supporting this arrangement. The absence of a completion date in the contract is deemed insignificant, as contract law implies a reasonable timeframe based on the parties' intentions and circumstances. Testimony suggested a reasonable building timeframe of three weeks, reinforcing the jury's findings on project completion expectations. Additionally, the court clarifies that lost-profit damages in this case do not qualify as consequential damages.

Damages for breach of contract aim to restore the injured party to the position they would have occupied if the breach had not occurred. Consequential damages arise indirectly from the breach, such as lost profits that do not result directly from the breach but from its consequences. To recover consequential damages, a plaintiff must establish that the defendant not only knew about the potential for special damages but also tacitly agreed to accept responsibility for them. However, lost profits can sometimes be considered direct damages if they are the natural and proximate result of the breach, in which case the tacit-agreement requirement does not apply.

In this case, Sharon Wadkins’s testimony indicated that the lost profits were a direct result of the appellant's breach regarding the construction of four houses before the other three. Her testimony was deemed reliable, as she had extensive experience in lending and operating chicken houses. She calculated the profit per flock at $28,714 after expenses and estimated losses of $57,428.57 for two flocks due to the delay. Additionally, she calculated $14,441.18 in extra interest costs resulting from the delay. The appellee also estimated his lost profits based on prior production, claiming losses ranging from $68,264.36 for two batches to $94,896.54 for three batches of chickens. The trial court found sufficient evidence to support these claims, allowing for damages to be approximated when exact amounts cannot be determined.

Substantial evidence supported the jury's award of lost-profit damages, leading to the affirmation of that point. The appellant argued that the trial court abused its discretion by denying a motion for a new trial based on repair costs under Arkansas Rule of Civil Procedure 59(a)(6). The appellant claimed it had substantially performed under the contract and was entitled to recover the contract price minus the repair costs. The rule allows for a new trial if the verdict contradicts the preponderance of evidence. The trial court's discretion in this matter is broad and typically not overturned unless there is an abuse of discretion.

The trial court interpreted the jury's verdict as affirming that the appellant was owed $68,307 under the contract while determining the appellee's total damages to be $136,614, resulting in a net judgment favoring the appellee. The jury allocated $34,716 to repair costs and $33,591 to lost profits, indicating that while the appellant substantially performed, the overall damages were double the contract amount, justifying the trial court's denial of a new trial.

Additionally, the appellant contended that the trial court erred by excluding statements from two letters that discussed compromise. The first letter detailed concerns about the insulation work and a request for a release of lien contingent upon satisfactory completion. The second letter criticized the appellant's actions and reiterated the conditions for payment. The trial court allowed the redacted version of the first letter but excluded the second. The appellant argued that this exclusion warranted a judgment notwithstanding the verdict (JNOV) or a new trial.

Arkansas Rule of Evidence 408 (2011) establishes that evidence related to negotiations aimed at compromising a disputed claim, including offers or promises of consideration, is not admissible to establish liability, claim validity, or the amount of the claim. Statements made during compromise negotiations are also excluded unless offered for different purposes, such as proving witness bias or delaying tactics. The appellant contended that it should have been permitted to introduce evidence regarding a "false lien" filed by the appellee and to impeach appellee’s claims about construction defects. The appellant argued that evidence would demonstrate that Mr. Tran was satisfied with the contractor's work, indicating a willingness to pay the remaining contract balance. However, the appellee maintained that he did not make payments because the release of claims was unacceptable, as he wanted to retain the right to sue for lost profits and defective construction.

The court referenced previous cases to clarify that while Rule 408 does not prohibit evidence for non-liability purposes, such evidence is still subject to the trial court's discretion, which should not be overturned unless there is a clear abuse. The court concluded that the letters from the appellee were not inconsistent with his trial testimony and their introduction would primarily indicate a willingness to settle, thus justifying their exclusion under Rule 408. 

Additionally, the excerpt discusses the principle of substantial performance in contract law, noting that a contractor can recover despite a breach if their performance is deemed sufficiently substantial. Factors influencing this determination include the extent of deprivation of expected benefits, the ability to compensate for those benefits, potential forfeiture by the failing party, likelihood of curing the failure, and adherence to good faith and fair dealing standards. The determination of substantial performance is ultimately a factual question.