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A. Miner Contracting, Inc. v. Toho-Tolani County Improvement District

Court of Appeals of Arizona, First Division, Department C

September 19, 2013

A. MINER CONTRACTING, INC., an Arizona corporation; and SAFECO INSURANCE COMPANY OF AMERICA, a Washington corporation, Appellants,
v.
TOHO-TOLANI COUNTY IMPROVEMENT DISTRICT, a political subdivision of the State of Arizona organized under A.R.S. § 48-901; COCONINO COUNTY, a political body, Appellees

Appeal from the Superior Court in Maricopa County, Cause Nos. CV2005-009781, CV2005-019434, CV2006-007290, CV 2007-000895, CV2008-001105 (Consolidated) The Honorable J. Kenneth Mangum, Judge (Retired) The Honorable Kristin Hoffman, Judge

Polsinelli PC Phoenix By David W. Lunn and Kathryn A. Smetana Attorneys for Appellants.

Greenberg Traurig, LLP Phoenix By E. Jeffrey Walsh, Gregory W. Seibt, and Julie R. Barton Attorneys for Appellees.

OPINION

PHILIP HALL, Judge [*]

¶1 This case involves a construction contract dispute between A. Miner Contracting, Inc. ("Miner") and the Toho-Tolani County Improvement District and Coconino County (collectively, "the District"). In granting summary judgment to the District, the trial court found that the District's previous finding that Miner had defaulted on its contractual obligations was conclusive as to Miner's claims and defenses in its contract litigation with the District, thus barring Miner's subsequent claims against the District under the doctrine of res judicata. The trial court also awarded the District the full amount of damages it sought against Miner and Safeco Insurance Company of America ("Safeco"), Miner's performance bond surety, and awarded attorneys' fees and costs to the District. Both Miner and Safeco appealed. For the reasons explained below, we affirm the trial court's judgment as to Miner. As to Safeco, we also affirm the court's grant of summary judgment to the District on liability, but vacate the liquidated portion of the damages award as well as the attorneys' fees award entered against Safeco and remand for further proceedings.

FACTS AND PROCEDURAL HISTORY

¶2 The following facts are undisputed. On November 4, 2003, Miner and the District entered into a contract ("the contract") for construction of a road and drainage improvement project ("the project"), estimated to cost $4, 286, 260.00. The project was to be completed 180 days after the District issued the Notice to Proceed on April 26, 2004. Safeco, a licensed construction surety, provided a performance bond guaranteeing Miner's performance on the project. Various disputes arose during the project, culminating in Miner's failure to finish the project by the initial completion date. To resolve these issues, Miner and the District entered into a "Settlement Agreement and Change Order No. 2" ("Change Order No. 2") on February 12, 2005. Pursuant to Change Order No. 2, Miner agreed to complete its scope of work by July 1, 2005, and the District agreed to release a portion of the withheld funds to Miner. Change Order No. 2 specifically stated that Miner's "failure to achieve substantial completion" of the work on or before July 1, 2005 "shall constitute a material breach of [c]ontract and this [a]greement." On June 8, 2005, Miner notified the District that it was "terminat[ing] the contract" due to the District's refusal to certify Miner's pay application for work performed through May 2005. On June 14, 2005, Miner filed a complaint against the District for breach of contract, unjust enrichment, tortious interference with contractual expectancies, and professional negligence.

¶3 On June 21, 2005, the Board of Directors for the District ("the Board") conducted a hearing ("the hearing") pursuant to Arizona Revised Statutes ("A.R.S.") section 48-924 (2000) to determine whether Miner was willing and able to complete the project and, if not, whether to hold Miner in default. Although Miner received notice of the hearing, it chose not to appear. Instead, its attorney submitted a letter to the District's attorney stating a list of requirements that had to be met for Miner to continue working on the project. The Board found Miner in default and made a demand on Safeco under the bond. On July 26, 2005, the District filed a complaint against Miner for breach of contract based on Miner's default.[1]

¶4 In September 2005, Safeco and the District entered into a Takeover Agreement "to expeditiously complete the Project, reserving all rights, claims and defenses against each other or any third parties for later resolution[.]" Safeco and the District agreed that Miner had been paid $2, 442, 784.00 under the contract, leaving a remaining contract balance of $1, 843, 475.82. Safeco and the District further agreed that the District would release $721, 158.22 of these funds to Safeco, and that the District would withhold $1, 122, 317.00 as its estimate of its claimed "actual damages" resulting from Miner's default. Safeco then entered into a contract with Combs Construction Company ("Combs") to complete the project for $3, 015, 012.72. The project was substantially completed by June 30, 2006, as required in the Takeover Agreement.

¶5 In November 2007, Miner moved for summary judgment on the District's damages claim. Miner argued that because the remaining contract proceeds retained by the District exceeded the amount of the District's claimed damages, the District could not recover any money from Miner. The District opposed Miner's motion and cross-moved for partial summary judgment on liability on its breach of contract claim, arguing, inter alia, that the doctrine of res judicata precluded Miner from contesting the default determination made by the Board at the hearing.[2] The District additionally argued it was entitled to both actual damages and liquidated damages pursuant to the Maricopa Association of Governments Uniform Standard Specifications for Public Works Construction ("MAG Specs") that were incorporated into the contract by reference.

¶6 Judge Kristin Hoffman initially denied the District's cross-motion for summary judgment on liability, finding that "[w]ith regard to the preclusive effect of the 924 hearing, I think it's been established [] at that hearing that Miner would not complete the project. . . . I think what's left to be adjudicated is who breached first." She further stated that the District could "re-urge" the motion "when discovery is more complete." After additional documents were filed pertaining to the motions and cross-motions for summary judgment, and the case had been reassigned to Judge J. Kenneth Mangum, the District renewed its summary judgment motion for breach of contract.[3]

¶7 The court granted the District's motion for summary judgment against Miner and Safeco for breach of contract. It found that Miner's claims were "barred by the rule of res judicata, that is to say, A. Miner [], had an obligation to protect its rights at a hearing before the [Board]. Thus, the voluntary and knowing refusal of [Miner] to participate in the hearing, preclude[d] legal review except by special action, which proceeding was not followed." After extensive motion practice, the court also granted the District's motion for summary judgment on damages against Miner and Safeco.

¶8 The trial court awarded the District $600, 000.00 in attorneys' fees and $30, 281.58 in costs and non-taxable expenses against Miner and $65, 000.00 in attorneys' fees and $552.61 in costs and non-taxable expenses against Safeco.

¶9 After the trial court entered final judgment in favor of the District pursuant to Arizona Rules of Civil Procedure (Rule) 54(b), [4] Miner and Safeco timely appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003).

DISCUSSION

¶10 Miner argues that the trial court erred by finding that it was barred by the doctrine of res judicata from contesting its liability on the District's breach of contract claim. Both Miner and Safeco argue that the court erred by granting the District's motion for summary judgment for actual and liquidated damages and by awarding the District attorneys' fees and costs. Safeco separately argues that it had a superior right as a surety to remaining contract proceeds. We address each contention in turn.

Standard of Review

¶11 We review issues of law, such as application of res judicata principles and statutory interpretation, de novo. Stearns v. Ariz. Dep't of Revenue, 231 Ariz. 172, 177, 24, 291 P.3d 369, 374 (App. 2012) (res judicata); Reeves v. Barlow, 227 Ariz. 38, 41, 12, 251 P.3d 417, 420 (App. 2011) (statutory interpretation). "Our goal in interpreting a statute is to give effect to legislative intent." Reeves, 227 Ariz. at 41, 12, 251 P.3d at 420 (quoting Short v. Dewald, 226 Ariz. 88, 93-94, ¶ 26, 244 P.3d 92, 97-98 (App. 2010)). "Statutory language that is clear and unambiguous is normally conclusive unless clear legislative intent to the contrary exists or impossible or absurd consequences would result." Id. "When construing a statute, we examine its individual provisions in the context of the entire statute to achieve a consistent interpretation." Id. (internal quotation omitted). "Indeed, 'if statutes relate to the same subject and are thus in pari materia, they should be construed together . . . as though they constituted one law.'" Id. (quoting Pima County by City of Tucson v. Maya Constr. Co., 158 Ariz. 151, 155, 761 P.2d 1055, 1059 (1988)).

¶12 A trial court shall grant summary judgment when "there is no genuine dispute as to any material fact and [] the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(a). In our review of the trial court's grant of summary judgment, "we view the evidence in the light most favorable to the [non-moving party], and determine de novo whether there are any genuine issues of material fact and whether the trial court erred in its application of the law." Nolan v. Starlight Pines Homeowners Ass'n, 216 Ariz. 482, 485, 167 P.3d 1277, 1280 (App. 2007) (citation omitted).

I. Res Judicata Effect of the Hearing

¶13 The creation and operation of county improvement districts are governed by an extensive statutory scheme. See A.R.S. §§ 48-901 to -967. The board of supervisors of the county in which the district is located, here Coconino County, is deemed the board of directors of the district. A.R.S. § 48- 908 (2000). The bidder to whom the district awards a contract for improvement must execute a performance bond that complies with A.R.S. § 34-222 (2011) .[5]The board of directors is authorized to hold a hearing if it believes the contractor's work on the project is not "being prosecuted with diligence" pursuant to A.R.S. § 48-924(D), which provides:

If the work is not prosecuted with diligence, the board of directors, after a hearing upon notice mailed or personally served upon the contractor [and] the contractor's surety . . ., may prescribe such terms and conditions as it deems proper before permitting the contractor to continue with the work if the board of directors determines that the contractor is capable of continuing the work. The determination of the board of directors shall be final and conclusive, and the determination may be reviewed only by a special action. . . . The board of directors may cause a reporter's transcript to be made of the hearing. Such transcript, when made and certified and filed with the clerk, shall be the official record of the hearing. Upon request by the contractor, the surety, . . . or the superintendent of streets, the board of directors may issue subpoenas or subpoenas duces tecum directed to any witness desired by any party to the hearing. The subpoena shall have the same effect as subpoenas in civil actions. If the subpoena is ...

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