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
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
& 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.
STARING, PRESIDING JUDGE.
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.
and Procedural Background
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.
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. 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.
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.
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.
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.
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.
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).
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 ...