Case Title: Dehnert v. Arrow Sprinklers, Inc.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1985-08-29T00:00:00Z

Document:
Dehnert v. Arrow Sprinklers, Inc.1985 WY 127705 P.2d 846Case Number: 84-142Decided: 08/29/1985EUGENE F. DEHNERT, INDIVIDUALLY; DEHNERT, RICHARDSON AND BENSMAN, APPELLANTS (DEFENDANTS), 

v. 

ARROW SPRINKLERS, INC., A UTAH CORPORATION, APPELLEE (PLAINTIFF).
Supreme Court of Wyoming
EUGENE F. DEHNERT, 
INDIVIDUALLY; DEHNERT, RICHARDSON AND BENSMAN, APPELLANTS (DEFENDANTS), 

v. 

ARROW SPRINKLERS, INC., A 
UTAH CORPORATION, APPELLEE (PLAINTIFF).

Rehearing Denied October 
16, 1985.

 
 
Appeal from the 
DistrictCourtofFremontCounty, Robert B. Ranck, 
J.

 
 
William F. 
Downes and J. Kenneth Barbe of Brown, Drew, Apostolos, Massey & Sullivan, 
Casper, for appellants.

Donald P. White, 
Mark J. White and Janet E. Millard of White, White, Spurrier & Millard, 
Riverton, for 
appellee.

Ellen Crowley, 
Cheyenne, and Margaret Bates Ellison, Denver, Colo., for amicus curiae Wyoming 
Chapter of American Institute of Architects.

Before THOMAS,* C.J., and ROSE, ROONEY,** BROWN and CARDINE, JJ.

* Became Chief Justice 
January 1, 1985.

** Chief Justice at time of 
oral arguments.

ROSE, 
Justice.

[¶1.]     Architect Eugene F. 
Dehnert and the architectural firm of Dehnert, Richardson and Bensman appeal 
from the judgment entered on a jury verdict awarding $400,000 in compensatory 
damages to appellee Arrow Sprinklers, Inc., upon its claim that appellants 
intentionally interfered with its landscaping and irrigation contract with 
Fremont County School District No. 1. We will hold that the evidence was 
insufficient to establish that appellants acted without justification in 
recommending that the school board terminate appellee's contract, and will, 
therefore, reverse the judgment of the district court.

FACTS

[¶2.]     Dehnert, Richardson and 
Bensman entered into a contract with Fremont County School District No. 1 on 
April 14, 1978 to study the district's educational facilities and requirements 
and to design and administer various construction projects.  The contract obligated the architectural 
firm to advise and consult with the owner/school district during the 
construction phase, to inform the owner of the progress and quality of the work, 
and to "endeavor to guard the Owner against defects and deficiencies in the Work 
of the Contractor."  The architect 
had authority under the contract to issue certificates for payment to 
contractors when appropriate and to reject work which did not conform to 
construction specifications.

[¶3.]     The contract authorized 
the architect to approve a contractor's proposals only for conformance with the 
design concept and with contract requirements:

"1.5.13  The Architect shall review and approve 
or take other appropriate action upon the Contractor's submittals such as Shop 
Drawings, Product Data and Samples, but only for conformance with the design 
concept of the Work and with the information given in the Contract 
Documents."

Any changes in 
the work, other than minor adjustments, had to be approved by the school 
district pursuant to a formal change order:

"1.5.14  The Architect shall prepare Change 
Orders for the Owner's approval and execution in accordance with the Contract 
Documents, and shall have authority to order minor changes in the Work not 
involving an adjustment in the Contract Sum or an extension of the Contract Time 
which are not inconsistent with the intent of the Contract 
Documents."

Appellant 
Dehnert represented the architectural firm in its performance of this 
contract.

[¶4.]     The construction 
projects contemplated by this contract included the installation of sprinkler 
systems and landscaping for three elementary schools in Lander, Wyoming. Appellants hired 
the engineering firm of Nelson, Melius & Associates, P.C. to act as a 
consultant for these projects. Harold Diddle, a mechanical designer and employee 
of Nelson, Melius and Associates, actually prepared the performance 
specifications for the irrigation systems and the 
landscaping.

[¶5.]     The documents 
distributed to potential bidders on these projects specified the use of brass 
sprinkler heads, known as "SAM" heads,1 or an approved equal. Contractors 
wishing to submit bids on the basis of equipment other than that specified were 
required to obtain prior approval from the architect. A successful bidder who 
had not obtained prior approval to substitute materials could, according to the 
bidding documents, apply in writing for permission to do 
so:

"After execution of 
Contracts, should Contractor desire to substitute materials and/or methods not 
approved prior to bid opening, apply in writing for such permission 
stating:

"1. Cause for request 
with substantiating documents.

"2. Documentary proof of 
equal or superior quality.

"3. Delivery 
time.

"4. Costs in the form of 
certified quotations from suppliers of both specified and proposed 
materials.

"Approved substitutions 
will be incorporated into the work by Change Order under conditions of the 
General Conditions." (Emphasis 
added.)

The General 
Conditions of the Contract for Construction, A/A Document A201, prepared by The 
American Institute 
of Architects and 
incorporated into the bidding documents, defines a change order as a written 
authorization from the owner and the architect to deviate from contract 
requirements:

"12.1.1 A Change Order is 
a written order to the Contractor signed by the Owner and the Architect, issued 
after execution of the Contract, authorizing a change in the Work or an 
adjustment in the Contract Sum or the Contract Time."

[¶6.]     Without obtaining prior 
approval pursuant to the bidding documents, appellee Arrow Sprinklers submitted 
a bid to the school board based on the use of a nonspecified, plastic sprinkler 
head, known as the "15103" head. At the bid opening on August 4, 1981, Calvin 
Bishop, president of Arrow Sprinklers, informed members of the school board that 
he intended to use the plastic sprinkler heads. The board awarded the 
construction contract to appellee as the low bidder on the 
project.

[¶7.]     The agreement between 
the school district and Arrow Sprinklers, dated August 5, 1981, incorporated by 
reference the project specifications as well as the General Conditions of the 
Contract for Construction prepared by The American Institute of Architects. These General Conditions 
describe the roles of the owner, the architect, and the contractor, and include 
the architect's powers and duties as set out in the agreement between appellants 
and the school district.

[¶8.]     On August 11, 1981, 
Calvin Bishop, representing appellee, and a consultant met with Harold Diddle 
who had prepared the specifications for the sprinkler system on behalf of 
appellants.2 Appellee submitted to Diddle a 
letter proposing to use certain irrigation equipment, including the 15103 head. 
The letter referred to the proposed head by number only and contained no 
information as to its quality or cost. Appellee also presented to Diddle its 
blueprints or "layouts," listing the 15103 head in the legend, and some catalogs 
describing various sprinkler equipment. After Diddle and Bishop discussed the 
differences between the proposed sprinkler heads and the specified SAM heads, 
Diddle expressed his approval of the nonspecified plastic heads. Bishop and 
Diddle then presented the layouts and submittal letter to appellant Dehnert, who 
verbally approved the plans after eliciting Diddle's opinion that the proposed 
system would work.

[¶9.]     On August 17, 1981, 
Dehnert advised appellee in writing of the architectural firm's conditional 
acceptance of the layouts:

"We are hereby accepting 
your lay-outs with any qualifications noted in the Specifications, as well as 
those noted on the attached letter."

The attached 
letter from the engineering firm noted certain minor items for revision, but 
contained no objection to the proposed plastic sprinkler heads. Bishop's 
submittal letter of August 11 was returned to him, bearing Diddle's notation 
that only the proposed pumps were rejected.

[¶10.]  With its plans thus approved, Arrow 
Sprinklers began work on the landscaping project in late August. By early 
November, Dehnert had reported to the school board that the project was 
substantially complete and had certified payments to appellee representing 78 to 
90 percent of the total contract price. In mid-November, however, a dispute 
developed between appellee and the architect concerning the fact that the 
installed sprinkler heads did not meet the specifications set out in the bidding 
documents. Appellants directed appellee to replace the heads, while appellee 
maintained that it had received prior written approval from the architectural 
firm to use the nonspecified equipment. As a result of Arrow Sprinklers' refusal 
to replace the disputed sprinkler heads, appellants eventually recommended to 
the school board that it terminate the construction contract. On April 14, 1982, 
the board notified appellee of its intent to cancel the contract unless the 
proper materials were supplied. Five months later, upon the architect's 
certification that sufficient cause existed, the board in fact terminated its 
contract with Arrow Sprinklers.

[¶11.]  Appellee initiated this action against 
the architectural firm, Dehnert, the engineering firm and Harold Diddle on 
theories of negligence and intentional interference with a contractual 
relationship. The district court dismissed all claims sounding in negligence, 
and appellee subsequently settled its differences with the engineering firm and 
Diddle. The case against Dehnert and the architectural firm went to trial on 
appellee's claim of intentional interference with a contract. The jury found 
that appellants had intentionally and without justification interfered with 
Arrow Sprinklers' contract with the school district and awarded compensatory 
damages of $400,000. The trial court denied motions for a new trial and judgment 
notwithstanding the verdict, and Dehnert and the architectural firm perfected 
their appeal to this court. The Wyoming chapter 
of The American Institute of Architects has filed an amicus curiae 
brief in support of appellants. 

[¶12.]  Appellants frame the principal issue on 
appeal as follows:

"Is the evidence 
sufficient to support the jury's finding and verdict against appellants for 
intentional interference with appellee's contract."

Kvenild v. Lavoie, Wyo., 594 P.2d 972 (1979); Board of Trustees of Weston County School 
District No. 1 v. Holso, Wyo., 584 P.2d 1009, reh. denied 587 P.2d 203 
(1978). We have said that no liability attaches where an individual, charged 
with protecting the interests of a third person, justifiably acts to cause that 
person not to perform a contract. Kvenild 
v. Lavoie, supra; Basin Electric 
Power Cooperative-Missouri Basin Power Project v. Howton, Wyo., 603 P.2d 402 
(1979). In Kvenild v. Lavoie, we 
overturned a judgment in favor of plaintiffs who alleged that the 
defendants/real estate agents had tortiously interfered with their contractual 
rights to buy certain real property. We held that the defendants had a duty to 
protect the seller's interests and were justified in their 
intervention:

"* * * The defendants 
cannot be held liable * * * because they stood in a relationship of 
responsibility to [the seller]. They were not strangers to the contract. They 
were agents protecting the interests of their principal. * * * The record can 
only support a finding that defendants were privileged to advise [the seller] to 
enter into the contract for sale with McMillan, and they were justified in doing 
so in view of the [plaintiffs'] equivocation and delay in consummating of the 
oral arrangement they had with [the seller]." 594 P.2d  at 
977.

See also Wartensleben v. Willey, Wyo., 415 P.2d 613 (1966); Tye v. Finkelstein, 
160 F. Supp. 666 (D.Mass. 1958); Prosser and Keeton, The Law of Torts § 129, p. 
985 (5th Ed., 1984); Restatement of the Law 2d, Torts § 
770.

[¶13.]  Like the real estate agent, the architect 
acting in his professional capacity typically is bound by contract to guard the 
interests of his principal. An architect who acts within the scope of his 
contractual obligations to the owner will not be liable for advising the owner 
to terminate a contractor's performance unless the architect acts with malice or 
in bad faith. Ballou v. Basic 
Construction Company, 407 F.2d 1137 (4th Cir. 1969); Lundgren v. Freeman, 307 F.2d 104 (9th 
Cir. 1962); Craviolini v. Scholer & 
Fuller Associated Architects, 89 Ariz. 24, 357 P.2d 611 (1961); Kecko Piping Company, Inc. v. Town of 
Monroe, 172 Conn. 197, 374 A.2d 179 (1977). In his treaties, Legal Aspects 
of Architecture, Engineering and the Construction Process, 2d Ed., Justin Sweet 
explains the concept of an architect's privilege to intervene in the contractual 
relationship between the owner and the contractor:

"* * * [I]nterference is 
not wrongful if it is privileged. * * * Privilege can be created by the 
relationship between owner and design professional. Also, it can be created by 
contract clauses either giving the design professional the right to terminate or 
allowing the owner to terminate upon certification by the design professional 
that adequate cause for termination exists. The privilege is granted to enable 
the owner to be advised honestly without the risk of the person giving advice 
being taken to court.

"The privilege, whether 
conferred by law or by contract, must not be abused. If the interference with 
the contractor's rights were motivated by malice or bad faith, the design 
professional would be liable for any pecuniary loss caused the contractor." 
Section 27.10, pp. 536-537.

A showing of 
malice or bad faith, not negligence, poor judgment or inflexibility, is 
essential if the contractor is to recover from the architect for contract 
interference. Ballou v. Basic 
Construction Company, 407 F.2d  at 1141.

[¶14.]  In light of the foregoing authority, the 
question for our resolution is whether the evidence was sufficient to establish 
that architect Dehnert and his firm acted with malice or bad faith - that is, 
acted without justification - in causing the school board to terminate the 
district's construction contract with Arrow Sprinklers. Appellee, at trial and 
before this court, claims that appellants exhibited bad faith in that they 
approved the nonspecified sprinkler heads and allowed construction to proceed, 
but disavowed that approval and recommended cancelation of the contract when the 
school board objected to the plastic sprinklers. Rather than admit their 
authorization of the use of equipment unacceptable to the board, appellants, 
according to appellee, maliciously urged termination of the construction 
contract on the ground that Arrow Sprinklers had failed to follow 
specifications.

[¶15.]  We are mindful that, where sufficiency of 
the evidence is an issue on appeal, we assume that the evidence of the 
successful party is true and leave out of consideration entirely the evidence of 
the unsuccessful party in conflict therewith. Krist v. Aetna Casualty&Surety, Wyo., 667 P.2d 665 (1983). We give to the evidence of the 
successful party every favorable inference which reasonably may be drawn from 
it. Farella v. Rumney, Wyo., 
649 P.2d 185 (1982). We will sustain the findings of the trial court unless 
clearly erroneous or contrary to the great weight of evidence. True v. 
Hi-Plains Elevator Machinery, Inc., Wyo., 577 P.2d 991 (1978). However, findings 
and judgments which are unsupported by the evidence, contrary to the evidence or 
against the great weight of evidence cannot stand. Kvenild v. Lavoie, 
supra.

[¶16.]  In the instant case, the uncontradicted 
evidence establishes that appellee did not abide by the contract procedures in 
seeking to substitute the nonspecified sprinkler heads. Instead of proceeding 
pursuant to a change order signed by the school board, appellee installed the 
plastic heads on the basis of the architect's conditional approval of 
layouts.

[¶17.]  It is true that appellee, in obtaining 
approval of its layouts, informed the architect and engineer of its intent to 
use nonspecified equipment. However, the information supplied by appellee in 
this connection was inadequate for purposes of initiating the change order 
necessary for the substitution of the plastic heads. Appellee did not furnish 
documentation that the quality of the proposed sprinkler head equaled or 
exceeded that of the specified head. Nor did appellee provide cost quotations or 
substantiate in writing its reasons for requesting the changes. These data, 
required by the contract documents in support of a request to deviate from 
specifications, would have enabled appellants to make an informed decision as to 
whether to prepare a change order for the school district's 
approval.

[¶18.]  The blueprints and limited information 
supplied by Arrow Sprinklers apparently sufficed to permit appellants to approve 
the plans for conformance with the design concept. This preliminary approval, 
pursuant to the contract documents, cannot be construed as a waiver of the 
additional contractual requirement that the contractor obtain a change order for 
the substitution of major equipment. See Acmat Corporation v. Daniel O'Connell's 
Sons, Inc., 17 Mass. App. 44, 455 N.E.2d 652 (1983). 
Therefore, neither the architect's verbal approval of the substitution at the 
August 11th meeting, nor appellants' subsequent conditional approval in writing 
of appellee's layouts, was effective to authorize the installation of the 
nonspecified sprinkler heads. 

[¶19.]  Appellants had a contractual duty to 
reject nonconforming work and generally to advise and protect the school 
district with respect to the landscaping and irrigation projects. Acting in this 
capacity, appellants rejected the sprinkler heads which did not meet contract 
specifications and which appellee had installed without proper authorization. 
When Arrow Sprinklers refused to replace the rejected heads,3 appellants advised the school board 
to terminate the construction contract. Appellants acted within the scope of 
their authority and based their recommendation on permissible factors under the 
contract documents. Therefore, their conduct was justified and they cannot be 
held liable for interfering with appellee's contract with the school district. 
Dehnert's failure to reject the plastic heads at the outset and his resolution 
of the resulting impasse may reflect negligence and poor judgment, but such 
conduct does not amount to the malice or bad faith necessary to hold appellants 
liable.

[¶20.]  Our disposition of this appeal renders 
unnecessary any consideration of appellants' questions concerning the duty to 
mitigate damages and the right of a foreign corporation to maintain an action in 
the courts of this state.

[¶21.]  We reverse the judgment of the district 
court and remand this case for the entry of a judgment consistent with this 
opinion.

1 Witnesses testified at 
trial that "SAM" indicates a stop-a-matic or seal-a-matic sprinkler 
head.

2 Arrow Sprinklers 
initiated this meeting with Diddle in compliance with the following directive in 
the bid documents:

"Before work is started, 
this Contractor shall provide a complete system layout drawing for each site to 
be submitted to the Engineer along with shop drawings on equipment and materials 
to be installed. This drawing to provide complete coverage of area as normally 
considered acceptable practice for sprinkler systems."

3 The General Conditions 
of the Contract for Construction direct the contractor to promptly correct 
nonconforming work, regardless of the time of discovery:

"13.2.1 The Contractor 
shall promptly correct all Work rejected by the Architect as defective or as 
failing to conform to the Contract Documents whether observed before or after 
Substantial Completion and whether or not fabricated, installed or completed. 
The Contractor shall bear all costs of correcting such rejected Work, including 
compensation for the Architect's additional services made necessary 
thereby."

CARDINE, Justice, dissenting, 
with whom BROWN, Justice, 
joins.

[¶22.]  I dissent.

[¶23.]  The question presented by this case was 
whether the defendants, in causing the cancellation of plaintiff's contract, 
were merely negligent or had acted in bad faith. There was a trial to a jury. 
Numerous witnesses were called and testified. The jurors heard their testimony, 
judged their demeanor, determined their credibility and the weight to be given 
their testimony. There were no objections to instructions in this area, and it 
must be assumed that the trial judge correctly instructed the jury upon the law. 
The jury determined that the defendants had acted in bad faith in causing the 
termination of the contract and that plaintiff should recover the damages 
suffered. We have said that the trier of fact

"at the trial heard and 
saw the witnesses. [It] is in the best position to determine questions of 
credibility and weigh and judge the evidence, both expert and non-expert. Thus, 
on appeal, it is a firmly established and oft-stated rule that we must accept 
the evidence of the successful party as true, leave out of consideration 
entirely the evidence of the unsuccessful party in conflict therewith, and give 
to the evidence of the successful party every favorable inference that may 
fairly and reasonably be drawn from it. Considering the evidence in this case in 
the light of these rules, it is apparent that the findings and judgment of the 
trial court must be sustained unless clearly erroneous or contrary to the great 
weight of evidence." Sowerwine v. 
Nielson, Wyo., 
671 P.2d 295, 301 (1983). See also, Anderson v. Bauer, 
Wyo., 681 P.2d 1316 (1984), and Grosskopf v. Grosskopf, Wyo., 
677 P.2d 814 (1984).

[¶24.]  Thus,

"as an appellate court, 
we must examine the evidence in a light most favorable to the prevailing party 
and resolve all conflicts in the testimony and exhibits in his favor. Unless 
clearly erroneous, we will not disturb the findings of the trial court on 
appeal." Scott v. Fagan, Wyo., 684 P.2d 805, 809 
(1984).

 

If the judgment 
is sustainable on any basis or valid ground appearing in the record, it must be 
affirmed. Valentine v. Ormsbee 
Exploration Corp., Wyo., 665 P.2d 452 
(1983), and Agar v. Kysar, 
Wyo., 628 P.2d 1350 
(1981).

[¶25.]  Viewing the evidence in a light most 
favorable to plaintiff, as I must, I find that appellants contracted with the 
school board to provide full architectural services including landscaping and 
sprinkler design. Appellants employed an engineering firm as its agent to write 
the specifications for the sprinkler project. In its bid, because of an 
inadequate water supply, appellee specified a sprinkler head different from the 
specifications. At the bid opening, appellee's bid was $55,000 lower than the 
next low bid. Appellants were concerned about the bid being so much below the 
next low bid. A school board member inquired and appellee advised, in 
appellants' presence, that it had, in its bid, used sprinkler heads different 
than those specified. The bid was accepted. Appellee submitted five sets of 
detailed plans to appellants and their engineer. Appellants reviewed and 
approved the plans including specifically the plastic sprinkler heads. Appellee 
installed the sprinkler system according to the plans submitted and which were 
approved by appellants. Appellants reported to the school board that the system 
was substantially complete, authorized payment of all but ten percent retainage 
to be withheld for the one-year warranty period.

[¶26.]  Ten days after approval, a school board 
trustee called appellants' office inquiring why the different sprinkler heads 
had been installed. Appellants did not admit that they and their engineer had 
approved the initial bid, the sprinkler heads, the plans for installation, had 
inspected the installation and approved payment of ninety percent of the 
contract price, but instead stopped payment to appellee and advised the school 
board to terminate appellee's contract. In the words of 
appellee:

"Appellant, rather than 
admit the prior approval and reveal to the School Board that he had exaggerated 
his familiarity with sprinkler work, embarked on a course of conduct 
deliberately calculated to shift the consequences of his mistake or lack of 
knowledge to Appellee. He succeeded in delaying the project, stopping payment to 
appellee for approximately two years thereby causing substantial damage to 
Appellee. His success in delaying the project was predicated, among other 
things, upon a blatant lie to an attorney to secure a legal opinion to present 
to his client bolstering his position to demand replacement of the installed 
sprinkler heads."

[¶27.]  Appellants' counsel during oral arguments 
conceded that had it been established that appellants acted in bad faith in this 
controversy, appellee would be entitled to recover its damages. Upon the facts 
of this case, I see the question of bad faith as one for the jury's 
determination. The jury, after hearing conflicting evidence, found that 
appellants acted in bad faith and awarded damages to appellee. There was 
substantial evidence to support the finding, and I would, therefore, affirm the 
jury's verdict and the judgment of the trial court.