Title: Road & Highway Builders v. N. Nev. Rebar

State: nevada

Issuer: Nevada Supreme Court

Document:

428 Nev., Advance Opinion 20
IN THE SUPREME COURT OF THE STATE OF NEVADA

ROAD AND HIGHWAY BUILDERS, No. 55542
LLC, A NEVADA LIMITED LIABILITY
COMPANY,

Appellant, F a £ D

NORTHERN NEVADA REBAR, INC., A 6 092012
NEVADA CORPORATION, ee
Respondent.

ROAD AND HIGHWAY BUILDERS, No, 56499
LLC, A NEVADA LIMITED LIABILITY
COMPANY,
Appellant,

vs.
NORTHERN NEVADA REBAR, INC., A
NEVADA CORPORATION,
Respondent.

 

Consolidated appeals from a district court judgment on a jury
verdict in a contract action and a post-judgment order denying a new trial
motion. Second Judicial District Court, Washoe County; Brent T. Adams,
Judge.

Affirmed in part and reversed in p:
Pisanelli Bice PLLC and Todd L, Bice and Jarrod L. Rickard, Las Vegas;

Carl M. Hebert, Reno,
for Appellant.

Holland & Hart LLP and Alex Flangas and Tamara Reid, Reno; Holland &
Hart LLP and J. Lee Gray, Greenwood Village, Colorado,
for Respondent.

 

LA-PSOAR

 
as

 

BEFORE CHERRY, C.J., GIBBONS and PICKERING, JJ.

OPINION

By the Court, CHERRY, C.J.:

‘These consolidated appeals address whether a claim for fraud
in the inducement is available when the basis for the claim contradicts the
very language of the contract at issue in the parties’ dispute. We conclude
that when a fraudulent inducement claim contradicts the express terms of
the parties’ integrated contract, it fails as a matter of law. Additionally,
we address the propriety of the damages awarded by the jury under a
separate claim for breach of contract. We affirm the compensatory
damages award but reverse the punitive damages award, as we reverse
the finding of fraud on which the punitive damages were based.

FAC’

Appellant Road and Highway Builders, LLC (Builders), a
general contractor, was awarded a contract with the Nevada Department
of Transportation (NDOT) to build a 2.3-mile portion of the Carson City
Freeway project (the Project), from U.S. Highway 50 to Fairview Drive
‘The Project required a substantial amount of reinforcing steel, or rebar,
including an amount to be used in the installation of more than 3,000
lineal feet of reinforced concrete boxes (RCBs) under the roadway surface
in order to drain water.

For the rebar subcontractor work, Builders chose respondent
Northern Nevada Rebar, Inc. (NNR), based on NNR’s pre-award bid to
Builders. According to NNR, its bid, including the unit price for the rebar,
was based upon providing all of the rebar needed pursuant to NDOT’s

 
——

plans and engineering estimates, which called for approximately 2.7

 

million pounds of black and epoxy-coated rebar and for manufacturing the
RCBs by pouring the concrete in place at the job site. Even before
incorporating NNR's bid into its bid to NDOT, however, Builders was
considering using precast RCBs instead of poured-in-place RCBs and had
begun the requisite change approval process through NDOT. Builders
decided that, if approval was granted, it would use a different
subcontractor, Rinker Materials, to supply the substituted precast RBs.
However, Builders never communicated these plans to NNR, and Builders
used NNR’s subcontract bid in making its bid on the Project to NDOT.
After being awarded the contract but while waiting for
NDOT's approval to use the precast RCBs, Builders began drafting a
subcontract with NNR for all of the rebar work on the Project. Builders
then, before obtaining approval from NDOT, submitted a purchase order
to Rinker for the precast RCBs for the Project. A few weeks later,
Builders delivered the written subcontract agreement to NNR. At this
point, Builders had not disclosed to NNR that it was attempting to use
precast RCBs from another supplier, Thus, Builders contemplated
making deductions to the quantities of rebar that NNR would furnish and
install under the draft subcontract. The day after Builders delivered the
subeontract_ to NNR, NDOT gave approval for the substitution of

 

approximately 80 percent of the poured-in-place RCBs, Builders did not
update the subcontract or otherwise disclose this information to NNR.
Builders and NNR subsequently negotiated and agreed to a
finalized subcontract (the Subcontract) for the Project’s rebar work. The
Subcontract provided that NNR would furnish all labor and materials
necessary to fully perform and complete the work, which consisted of the

 

 

 
con ee

 

full 2.7 million pounds of rebar, including the RCBs. The
Subcontract also specified, however, that “[wlithout invalidating this
Subcontract(] ... [Builders] may, at any time or from time to time, order
additions, deletions or revisions in the Work to be performed by [NNRI.”
And similarly, the Subcontract also stated, “[iJn addition to changes made
or additional Work ordered by [NDOT] under the Contract, [Builders]
reserves the right to make any change, including additions of omissions, in
the Work to be performed by [NNR] under this Subcontract.” ‘The
Subcontract set the non-modifiable unit price of the rebar while at the
same time recognizing that the final quantities of rebar would match
NDOT's quantities unless otherwise agreed to in writing. Builders was
granted the absolute right to terminate at any time and for any reason,
and the parties expressly agreed that, in the event of such a termination,
NNR’s sole remedy would be payment for the work that it had performed
up to the termination date. So as to preclude any oral understandings
contrary to the Subcontract’s written terms, the parties agreed that the
written agreement was their only agreement,

After the Subcontract was executed, NNR began delivering
and installing rebar on the Project. However, many of the precast RCBs
had already been installed by Rinker, When NNR first learned of
Builders’ use of precast RCBs, it sought an equitable adjustment of the
unit price for the rebar pursuant to the Subcontract, Builders rejected the
request, stating that it had a right to make the changes. In response,
NNR sought payment for the work provided to date and demanded to be
released from the Subcontract; nonetheless, NNR continued to work on the
Project. Subsequently, Builders sent a letter to NNR stating that it had
ceased all payments to NNR until the matter was resolved. NNR

 

 
 

on

continued to work and responded to the cease-payment letter by
requesting payment and withdrawing the demand to be released from the
‘Subcontract.

Several weeks later, NNR's employees did not show up on the
Job site because, according to NNR, it was completely out of work while it
was waiting for Builders to move dirt. ‘The same day that NNR's
employees did not show up, Builders sent a letter to NNR stating that
NNR was in default for not showing up and informing NNR that it would
be replaced immediately, After receiving the termination letter, NNR's
employees indicated that they would not be returning. By that time, NNR
had supplied 28 percent of the total black rebar and 6 percent of the total
epoxy-coated rebar for the Project.

Builders filed suit against NNR the next day, alleging a claim
for breach of contract. NNR answered and asserted several counterclaims
against Builders, including fraud in the inducement, breach of contract,
breach of the implied covenant of good faith and fair dealing, and
consumer fraud, Builders replaced NNR with a new subcontractor,
causing a 16-day delay and requiring Builders to pay $152,198 more than
NNR’s total bid price for the rebar on the Project, in add
delay damages.

After a failed attempt by Builders to remove NNR’s fraudulent

 

mn to other

inducement counterclaim via summary judgment, the parties proceeded to
trial, Following NNR’s case-in-chief, Builders moved for judgment as a
matter of law under NRCP 50(a), on the sole basis that NNR had failed to
make a prima facie case for fraudulent inducement, but the district court
denied the motion.

 

 
os

 

Following the four-day trial, the jury unanimously found
against Builders on its claim and found in favor of NNR on its
counterclaims, ‘The jury awarded NNR $700,000 in compensatory
damages. Because the jury found that there had been fraudulent conduct,
the jury returned for further deliberation on punitive damages. ‘The jury
assessed $300,000 in punitive damages against Builders,

After judgment was entered on the jury verdict, Builders
renewed its motion for judgment as a matter of law and sought a new
trial; the district court denied Builders’ motion. Builders appealed,
arguing among other things that the district court erred in allowing
NNR's fraud claims to proceed to trial when the basis for the fraud claims
contradicts the very language of the Subcontract and that the defects in
the fraud claims leave the damages awards unsupported.

DISCUSSION

We first address whether the counterclaim for fraud in the
inducement could proceed in this case when the basis for the claim
contradicts the terms of the contract at issue in the parties’ dispute. We
then move on to address the propriety of the damages awards.
Standard of review

Builders argues that it was entitled to summary judgment or
judgment as a matter of law on NNR's counterclaim for fraud in the
inducement. We review such rulings de novo. Winchell v. Schiff, 124 Nev.
938, 947, 193 P.3d 946, 952 (2008) (reviewing a district court’s order
granting or denying judgment as a matter of law de novo); Wood v.
Safeway, Inc., 121 Nev. 724, 729, 121 P.34 1026, 1029 (2005) (reviewing
granting or denying of summary judgment de novo).

 
Fraudulent inducement
Builders contends that the district court erred as a matter of

law in allowing NNR’s fraudulent inducement counterclaim to proceed, as
the law precludes assertions of fraud when the alleged misrepresentation
is contradicted by the parties’ bargained-for terms. See, e.g., Tallman v.
First Nat. Bank, 66 Nev. 248, 259, 208 P.2d 902, 907 (1949) (stating that
“fraud is not established by showing parol agreements at variance with a
written instrument and there is no inference of a fraudulent intent not to
perform from the mere fact that a promise made is subsequently not
performed”); Brinderson-Newberg v, Pacific Erectors, 971 F.2d 272, 278
(9th Cir, 1992) (explaining that completely integrated contracts negate
any oral agreements that provide for contrary interpretations of the
contract terms). In particular, Builders argues that NNR cannot rest
upon a purported promise concerning the amount of rebar NNR would
provide for the Project, when that representation is at odds with the
parties’ agreed-upon contractual terms allowing Builders to reduce the
quantity of rebar, stating that the unit price of the rebar was unaffected
by quantity, and providing that the contract was terminable at will.

NNR contends that the facts presented at trial amply support
the jury’s finding that Builders committed fraud, insofar as Builders
induced NNR to enter into a contract to provide all the rebar necessary for
the Project, without disclosing to NNR that it had no intention of
performing its contractual obligations and had already ordered a

INNR argues that Builders waived this argument and the argument
that NNR is not entitled to punitive damages, However, because Builders
raised these issues in the district court through a motion for summary
judgment and in its request for judgment under NRCP 50(a), they are
properly raised on appeal.

 

 
me a

 

substantial amount of the contracted rebar from another supplier. NNR
argues that it was induced into entering into the contract and that it was
induced into offering a lower unit price because of the large amount of
rebar needed for the Project.

Reading the Subcontract as a whole and avoiding negating
any contract provision, as we must, see National Union Fire Ins, v, Reno's
Exec. Air, 100 Nev. 360, 364, 682 P.2d 1380, 1383 (1984); Philips v,
Mercer, 94 Nev, 279, 282, 679 P.2d 174, 176 (1978), results in the
reasonable interpretation that the parties contemplated a potential
alteration in the scope of NNR's work. As explained by this court in

 

Tallman, the purported inducement cannot be something that conflicts
with the Subcontract’s express terms, as the terms of the contract are the
‘embodiment of all oral negotiations and stipulations. 66 Nev. at 257, 208
P.2d at 306. “When the plaintiff pleads that the writing ... does not
‘express the intentions of the parties to it at the timo, he pleads something
which the law will not permit him to prove.” Id, (quoting Natrona Power
Co, v, Clark, 225 P. 586, 589 (Wyo. 1924)); see also Green v. Del-Camp
Investment, Inc, 14 Cal. Rptr. 420, 422 (Ct. App. 1961) (stating that
where “the claimleld fraud consists of a false promise with respect to a
‘matter covered by the agreement itself, the oral evidence would contradict
the terms of the agreement, in direct contravention of the rules. Such
proof is not permitted.”); Sherrodd, Inc. v, Morrison-Knudsen Co,, 815 P.2d
1135, 1137 (Mont, 1991) (providing that the exception made to the parol
evidence rule when fraud is alleged “only applies when the alleged fraud
does not relate directly to the subject of the contract. Where an alleged
oral promise directly contradicts the terms of an express written contract,
the parol evidence rule applies.”).

 
0 nn >

‘The Subcontract specified that Builders could, at any time,
order additions, deletions, omissions, or revisions to NNR's work. While
the Subcontract specified that the final quantities of rebar would match
DOT's quantities unless otherwise agreed to in writing, the Subcontract
also allowed for Builders to order revisions to NNR's work, regardless of
any changes to the rebar work provided under the NDOT contract.
Moreover, the Subcontract provided that the total price would be subject
to additions and deductions for changes in the work and other
adjustments, but that the unit prices were set to remain in force
regardless of quantity. Therefore, while Builders might have breached the
contract by unilaterally making alterations to the scope of work without
an agreement in writing, this eannot form a basis for fraud under these
circumstances. ‘The parties contemplated a potential alteration in the
scope of work, which NNR impliedly admits in its answering brief when it
affirmatively quotes from the contract provision that “(final quantities
may vary and will match [NDOT's} quantities to [Builders] unless
otherwise agreed to in writing” in support of its argument. Based on this,
NNR’s fraudulent inducement claim directly contradicts the terms of the
contract, at least one of which NNR itself admits is an accurate
representation of the parties’ bargain. While Builders may have acted
improperly by failing to obtain a written agreement before making
changes in the scope of work, this amounts to a breach of contract, not a
fraud. In light of the foregoing, we conclude that NNR’s fraudulent
inducement claim fails as a matter of law.?

*The parties in this case failed to raise the argument that the risk of
this type of problem was allocated in the contract; since the matter is
incorporated into and not collateral to the contract terms themselves,

9

 

 
Compensatory damages
Builders argues that the jury's verdict indisputably rests only

upon the defective fraudulent inducement claim because no other claim
could sustain the jury's $700,000 compensatory damages verdict. Builders
contends that under the contract, NNR would only be able to receive the
actual cost of work completed, not for lost profits. However, we conclude
that both NNR’s breach of contract claim and its breach of the implied
covenant of good faith and fair dealing claim fully support the award.

“We will affirm an award of compensatory damages unless the
award is so excessive that it appears to have been given under the
influence of passion or prejudice.” Bongiovi v, Sullivan, 122 Nev. 556, 577,
138 P.3d 433, 448 (2006), Unless it is determined from all the evidence
presented that a jury's verdict is clearly wrong, the jury's compensatory
damage award should be left undisturbed. Ringle v. Bruton, 120 Nev. 82,
91, 86 P.3d 1032, 1038 (2004). In reviewing whether the evidence
supports the jury's compensatory damage award, all favorable inferences
must be drawn in favor of the prevailing party. See Grosjean v. Imperial
Place, 125 Nev. 349, 366, 212 P.3d 1068, 1080 (2009).

NNR provided testimony that it was owed $500,000 for labor
and materials that it provided but for which Builders did not pay and a
little over $200,000 for earned profits for work already completed.® The
jury unanimously found in favor of NNR on its counterclaims and awarded
NNR $700,000 in compensatory damages. Thus, the jury's award

 

 

breach of contract claims should prevail over tort claims. Because this
argument was not raised, it will not be discussed further.

8We reject Builders’ argument that provision 15.2.1 of the
Subcontract prevents recovery of lost profits on the work already
performed under the contract.

 

 
ed

corresponded with NNR's testimony regarding what NNR claimed it was
owed for labor, material, and lost profits for completed work.

In light of the broad test enunciating that an award for
damages will only be reduced or overturned if the award is clearly wrong,
we conclude that the award of compensatory damages in this case is
properly supported by the breach of contract claim or the breach of the
implied covenant of good faith and fair dealing claim. See Hilton Hotels v,
Butch Lewis Productions, 109 Nev. 1043, 1046, 862 P.2d 1207, 1209 (1993)
(stating that the duty of good faith and fair dealing is always imposed on
the contracting parties and becomes a part of the contract such that the
remedy for the duty’s breach is based on the contract). It is well
established that in contracts cases, compensatory damages “are awarded
to make the aggrieved party whole and . . . should place the plaintiff in the
position he would have been in had the contract not been breached.”
Hornwood v, Smith's Food King No. 1, 107 Nev. 80, 84, 807 P.2d 208, 211
(1991). This includes awards for lost profits or expectancy damages.
Colorado Environments v. Valley Grading, 105 Nev. 464, 470-71, 779 P.2d
80, 84 (1989) (adopting the test espoused in Restatement (Second) of
Contracts § 347 (1979).

‘The Restatement (Second) of Contracts § 347 (1981) sets forth
the proper method for determining lost profit or expectancy damages. It
provides that:

[slubject to the limitations stated in §§ 350-
‘53, the injured party has a right to damages based
on his expectation interest as measured by

(a) the loss in value to him of the other

party's performance caused by its failure or

deficiency, plus

u

 

 
1 8 Be

 

(b) any other loss, including incidental or
consequential loss, caused by the breach,
less

(©) any cost or other loss that he has avoided
by not having to perform.

Pursuant to our caselaw and the aforementioned Restatement
(Second) test, it was proper for the jury to award compensation to NNR
under the breach of contract or the breach of the implied covenant of good
faith and fair dealing claims for both its costs and for lost profits. The
evidence supported that Builders’ refusal to pay resulted in NNR losing
the benefit of the bargain, i,e,, lost profits, and the unpaid labor and
material costs it provided on the job.

However, Builders asserts that NNR's claims for breach of
contract and breach of the contractual duty of good faith and fair dealing
cannot sustain such a verdict because the contract was terminable at
Builders’ convenience, Builders cites to Dalton Properties, Inc. v. Jones,
100 Nev. 422, 424, 683 P.2d 30, 31 (1984), for the proposition that when
the contract is terminable at will, the terminated party cannot recover lost
profits. We conclude that Builders’ reliance on Dalton is misplaced
because it deals with an award for unearned profits, 100 Nev. at 424, 683
P.2d at 31, while NNR's award was for lost profits on work already
completed. In the instant matter, we conclude that because the jury could
only have awarded $200,000 in lost profits, as NNR was owed $500,000 for
labor and materials and was awarded $700,000, and as those lost profits
‘were not future lost profits but were for work that was already completed,
this does not run afoul of Dalton or the Restatement test. See
Restatement (Second) of Contracts § 347 (indicating that damages should
be reduced by any cost or other loss that has been avoided by no longer
being required to perform),

12

 
one

 

Punitive damages
Because we conclude that the fraudulent inducement claim

fails as a matter of law, we further conclude that the award for punitive
damages cannot stand. Amoroso Const. v. Lazovich and Lazovich, 107
Nev. 294, 298, 810 P.2d 775, 777-78 (1991) (explaining that punitive
damages are not permissible for breach of contract claims (citing Sprouse
v. Wentz, 105 Nev. 597, 781 P.2d 1136 (1989))). ‘This award for punitive

 

damages cannot be supported by the breach of the implied covenant of
good faith and fair dealing as that claim sounds in contract, and not tort,
in this instance, See Hilton Hotels v, Butch Lewis Productions, 109 Nev.
1043, 1046-47, 862 P.2d 1207, 1209 (1993) (concluding that while “{iJn
certain circumstances, breach of contract, including breach of the covenant
of good faith and fair dealing, may provide the basis for a tort claim,” there
is a special element of reliance or fiduciary duty that is required for the
claim to sound in tort (quotation omitted), As there was no special
element of reliance or fiduciary duty here for the implied covenant claim to
be based in tort, punitive damages cannot stand. Accordingly, we reverse
the district court’s award of punitive damages.*

“Builders also argues that the district court abused its discretion in
sua sponte excluding the testimony of an expert witness. NNR asserts
that Builders waived this argument by failing to object to the district
court's ruling to exclude the testimony, However, Builders raised this
issue in its renewed motion for judgment as a matter of law or for a new
trial, and the district court ruled on the issue, and thus, we address
Builders’ argument.

“Whether expert testimony will be admitted, as well as whether a
witness is qualified to be an expert, is within the district court’s discretion,
and [we] will not disturb that decision absent a clear abuse of diseretion.”
‘Matter of Mosley, 120 Nev. 908, 921, 102 P.3d 555, 564 (2004) (quoting
Mulder v, State, 116 Nev. 1, 12-13, 992 P.2d 845, 852 (2000)). If the

13,

 
For the foregoing reasons, we affirm the district court's

judgment as to compensatory damages and we reverse the district court's

heer, os

Cherry

judgment as to punitive damages.

jibbons

L J.
Pickering
/

challenged issue would not have changed the outcome of the case, there is
no violation of the party's substantial rights and thus no basis for granting
a new trial. Edwards Indus. v. DTE/BTE, Inc., 112 Nev. 1025, 1037, 923
P.2d 569, 576 (1996). We conclude that the district court did not abuse its
discretion in the exclusion of the expert testimony as Builders makes no
showing that the exclusion of the expert's proffered testimony would have
in any way altered the outcome of any of NNR's claims.

 

All other arguments raised by the parties are rendered moot by the
disposition of this appeal.