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SK Builders, Inc. v. Smith

Court of Appeals of Arizona, Second Division

January 29, 2019

SK Builders, Inc., an Arizona corporation, Plaintiff/Appellee,
Michael and Sandi Smith, husband and wife, Defendants/Appellants. Michael and Sandi Smith, husband and wife, Third-Party Plaintiffs/Appellants,
David Alan Connor, Gregory John Connor, D.C. Concrete Company, Inc., Third-Party Defendants/Appellees.

          Appeal from the Superior Court in Pima County No. C20130545 The Honorable Sarah R. Simmons, Judge.

          Waterfall, Economidis, Caldwell, Hanshaw & Villamana P.C., Tucson By Corey B. Larson and Ariel E. Henderson Counsel for Plaintiff/Appellee

          Thomas A. Zlaket P.L.L.C., Tucson By Thomas A. Zlaket and The Law Offices of Charles M. Giles, Tucson By Charles M. Giles Counsel for Defendants/Third-Party Plaintiffs/Appellants

          Rai & Barone P.C., Phoenix By Rina Rai, Jack G. Barone, and Tom Duer Counsel for Third-Party Defendants/Appellees

          Presiding Judge Staring authored the opinion of the Court, in which Chief Judge Eckerstrom and Judge Brearcliffe concurred.



         ¶1 Michael and Sandi Smith appeal the trial court's judgment that they violated Arizona's Prompt Pay Act ("APPA"), A.R.S. §§ 32-1129 to 32-1129.07, by failing to pay or object in writing to a payment application submitted to them for construction of their new home. The Smiths also argue the court erroneously concluded no issues remained in their lawsuit against the concrete subcontractor after granting the subcontractor summary judgment. Finally, they challenge the attorney fees awarded to both the general contractor and concrete subcontractor as unreasonable. For the following reasons, we affirm in part, reverse in part, and remand.

         Factual and Procedural Background

         ¶2 In September 2010, the Smiths entered into an agreement with SK Builders, Inc., a licensed general contractor, for the construction of a home. The original contract price was $1, 632, 804. The house was approved for occupancy, subject to final inspection and corrections, on March 22, 2012.

         ¶3 On May 1, 2012, SK submitted a third amended version of Payment Application No. 19 ("PA 19") to the Smiths, claiming they owed $180, 289.61.[1] Pursuant to the contract, SK had previously submitted and the Smiths had paid numerous monthly payment applications throughout the period of construction. In total, they made progress payments to SK in the amount of $1, 506, 314.76.

         ¶4 Before SK submitted the third amended version of PA 19, Ronald Robinette, architect and contract administrator, sent SK a letter advising that no further payments would be made until outstanding issues were resolved. According to Robinette, SK actually owed the Smiths money.

         ¶5 The outstanding issues to which Robinette referred concerned an interior concrete crack and the absence of wire mesh in the concrete that formed the back patio. SK had made repairs by injecting epoxy into the interior concrete crack. SK had also retained engineers to test the back patio, and they had concluded that, although the concrete deviated from the plans, it was in fact stronger than as specified in the plans. Based on the engineering findings, the concrete subcontractor, DC Concrete, refused to completely replace the back patio. PA 19 did not contain any request for payment related to the concrete work; the Smiths had already paid the full amount for the concrete work in previous payment applications, without objection.

         ¶6 The Smiths terminated the contract with SK effective May 5, 2012. Neither the Smiths, nor Robinette acting on their behalf, ever paid SK the amount requested in PA 19. Nor did the Smiths or Robinette object in writing to any of the items contained in PA 19. The Smiths continue to occupy the house and have not replaced the back patio.

         ¶7 SK sued the Smiths, claiming a violation of the APPA, breach of contract, and unjust enrichment. In the lawsuit, SK sought payment of the $180, 289.61 claimed in PA 19, an additional $10, 234.15, interest, and attorney fees. The Smiths counterclaimed against SK, also bringing a third-party complaint against SK's owner and some of SK's subcontractors, including DC, alleging breach of contract/defective workmanship, professional negligence, and fraudulent misrepresentation. Additionally, after several amendments to the third-party complaint, the Smiths included claims against Robinette and various project engineers. All claims except SK's claims against the Smiths were settled or otherwise resolved before trial.

         ¶8 The trial court granted summary judgment in favor of DC on the Smiths' breach of contract and fraudulent misrepresentation claims, finding no contractual privity between DC and the Smiths. Further, notwithstanding the Smiths' assertion that there were unresolved claims, the court ruled that no legal issues remained with respect to DC and, therefore, it was entitled to judgment pursuant to Rule 54(b), Ariz. R. Civ. P. The court awarded DC $259, 092.70 in attorney fees, $5, 299.34 in costs, and $30, 564 in sanctions pursuant to Rule 68(g), Ariz. R. Civ. P. See Ariz. R. Civ. P. 68(g) (sanctions for party who rejects offer of judgment, but does not obtain more favorable judgment).

         ¶9 After a bench trial, the trial court found the Smiths had violated the APPA by failing to object in writing to any of the items in PA 19 within fourteen days of its submission. The court, however, found in favor of the Smiths on SK's breach of contract claim and dismissed SK's unjust enrichment claim. It entered judgment for SK for $180, 289.61, and awarded SK $60, 000 in attorney fees. The court later reduced the attorney fees ...

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