Title: Dynalectric Co. of Nev., Inc. v. Clark & Sullivan Constructors, Inc.

State: nevada

Issuer: Nevada Supreme Court

Document:

on.

 

4121 Nev., Advance Opinion “tl
IN THE SUPREME COURT OF THE STATE OF NEVADA

DYNALECTRIC COMPANY OF
NEVADA, INC., A NEVADA
CORPORATION,

Appellant,

CONSTRUCTORS, INC.,

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CLARK & SULLIVAN
Respondent.

 

Appeal from an amended district court judgment following a
bench trial in a contract action, Eighth Judicial District Court, Clark
County; Mark R. Denton, Judge.

Affirmed,
Morris Peterson and Akke Levin and Steve Morris, Las Vegas; Holland &

Hart, LLP, and Philip Dabney and Lars Evensen, Las Vegas,
for Appellant.

McDonald Carano Wilson LLP and William A.S. Magrath, II, and Craig A.

Newby, Las Vegas,
for Respondent.

BEFORE DOUGLAS, C.J., CHERRY, SAITTA, GIBBONS, HARDESTY
AND PARRAGUIRRE, JJ.

‘The Honorable Kristina Pickering, Justice, voluntarily recused
herself from participation in the decision of this matter.

Waited

 

 
OPINION
PER CURIAM:
In this appeal, we address the measure of damages applicable

to promissory estoppel claims, We adopt a flexible approach as suggested

 

in the Restatement (Second) of Contracts and apply the same factors that
bear on promissory estoppel relief to the remedy afforded by the breach.
‘The determination of the appropriate measure of damages in any given
case turns on considerations of what justice requires and the foreseeability
and certainty of the particular damages award sought. We further
conclude that the presumptive measure of damages for a general
contractor that reasonably relies upon a subcontractor’s unfulfilled
promise is the difference between the nonperforming subcontractor’s
original bid and the cost of the replacement subcontractor’s performance.
FACTS AND PROCEDURAL HISTORY

‘This appeal arises from a dispute between appellant
Dynalectric Company of Nevada, Inc, a subcontractor, and respondent
Clark and Sullivan Constructors, Inc. (C&S), a general contactor,
concerning a public works project (the Project). The Project involved the
expansion of the University Medical Center (UMC) in Las Vegas. In 2004,
UMC solicited bids for the Project. C&S, interested in serving as the

general contractor for the Project, sought bids from subcontractors.
Dynalectric submitted a bid to C&S to perform the electrical work for the
Project and repeatedly assured C&S of the accuracy of its bid. C&S
incorporated Dynalectric's bid into its bid to UMC for the general contract
(Prime Contract). C&S was the low bidder, and UMC awarded it the
Prime Contract. C&S notified Dynalectric. Subsequently, Dynalectric
repudiated its obligations to C&S and refused to negotiate with C&S.

 

 
4

 

C&S therefore contracted with three replacement subcontractors to
complete the electrical work for the Project.

C&S then sued Dynalectric in district court under various
theories of liability, including breach of contract, promissory estoppel, and
breach of the covenant of good faith and fair dealing. Dynalectrie
countersued for, among other theories, breach of an implied contract,
fraud, and violation of NRS 338.141.2

Following a 12-day bench trial, the district court entered a
judgment for C&S on its promissory estoppel claim and rejected each of
Dynalectric’s counterclaims, The district court awarded C&S $2,601,615
in damages, which represents the difference between Dynalectric’s bid
($7,808,983) and the amount C&S paid the three replacement contractors
to complete the work ($10,310,598). Dynalectric appealed.

DISCUSSION

Dynalectric contends that the district court applied the
incorrect measure of damages.? Specifically, it asserts that the district
court should not have awarded C&S expectation damages. We disagree.

®NRS 338.141 is Nevada's anti-bid-shopping statute. It prohibits a
general contractor from substituting a named subcontractor on a public
works project before first providing the named subcontractor with a
subcontract containing the same general terms offered to all other
subcontractors on the project. NRS 338.141(5)(b)(1),

SDynalectric also contends that the district court erred in (1)
determining that C&S properly substituted Dynalectric in accordance with
the requirements of NRS 338.141, (2) finding that C&S accepted
Dynalectric’s bid, (3) determining that C&S had proven its promissory
estoppel claim, (4) determining that C&S did not have unclean hands, (5)
determining that Dynalectric did not produce clear and convincing
evidence that C&S committed fraud, (6) awarding C&S damages that were

continued on next page...

 
Standard of review

Whether a party is “entitled to a particular measure of
damages is a question of law” reviewed de novo. Toscano v, Greene Music,
21 Cal. Rptr. 3d 732, 736 (Ct. App. 2004),
Measure of damages for promissory estoppel claims

Broadly speaking, Nevada follows the doctrine of promissory
estoppel articulated in the Restatement (Second) of Contracts. See

Vancheri v.GNLY Corp., 105 Nev. 417, 421, 777 P.2d 366, 369 (1989).
‘The Restatement describes promissory estoppel as follows:

A promise which the promisor should reasonably
expect to induce action or forbearance on the part
of the promise or a third person and which does
induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the
promise, The remedy granted for breach may be
limited as justice requires.

continued

not supported by substantial and competent evidence, and (7) calculating
prejudgment interest from the date the complaint and summons were filed
rather than from the date C&S incurred its damages. After carefully
reviewing the record, we conclude that substantial evidence supports the
district court’s finding that the subcontract that C&S offered to
Dynalectric was in reasonable conformity with the subcontracts offered to
the other subcontractors on the project and that the district court correctly
determined that C&S did not abridge the proscription provided in NRS
338.141. We further conclude that the district court's remaining findings
of fact were not clearly erroneous and were supported by substantial
evidence and that its pertinent conclusions of law were correct. See
NOLM, LLC v. County of Clark, 120 Nev. 736, 739, 100 P.3d 658, 660-61
(2004) (noting that we will not set aside the district court's findings of fact,
“unless they are clearly erroneous or not supported by substantial
evidence” and that we review issues of law de novo (internal quotation
omitted)),

 

 
  
  
 
 
 
 
 
   
    
   
   
  
 
     
 
    
   
 

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Restatement (Second) of Contracts § 90(1) (1981).
Comment d elaborates further upon the remedies available for
promissory estoppel:

A promise binding under this section is a contract,
and full-scale enforcement by normal remodies is

often appropriate. But the same factors which

bear on whether any relief should be granted also

bear on the character and extent of the remedy.

In particular, relief may sometimes be limited to

restitution or to damages or specific relief

measured by the extent of the promisee’s reliance

rather than by the terms of the promise.

Id. § 90 emt. d (emphasis added).
‘Thus, under the Restatement, an award of expectation

damagest is often an appropriate remedy for promissory estoppel claims.

 

But, in other instances, reliance damages’ or restitutionary damages’ may
be more suitable,

Following the lead of the Restatement, we hold that the
district court may award expectation, reliance, or restitutionary damages

“Expectation damages attempt to place the plaintiff in the position
that he or she would have occupied if the contract had been performed or if
the promise had been kept. See Restatement (Second) of Contracts §
344(a) (1981),

"Reliance damages attempt to restore the plaintiff to the position he
or she would have occupied if the breached contract or promise had never
been made. See Restatement (Second) of Contracts § 344(b) (1981).

"Restitutionary damages attempt to return the defendant to the
position he or she would have occupied if the contract or promise had
never been made. See Restatement (Second) of Contracts § 344(c) (1981).

 
7

for promissory estoppel claims.’ Although the doctrine of promi

 

ory
estoppel is conceptually distinct from traditional contract principles, there
is no rational reason “for distinguishing the two situations in terms of the
damages that may be recovered.” ‘Toscano, 21 Cal. Rptr. 8d at 737
(quoting Signal Hill Aviation Co,, Inc, v, Stroppe, 158 Cal. Rptr. 178, 185
(Ct. App. 1979). In sum, no single measure of damages will apply to each
and every promissory estoppel claim; instead, to determine the
appropriate measure of damages for promissory estoppel claims, the
district court should consider the measure of damages that justice requires
and that comports with the Restatement

 

general requirements that
damages be foreseeable and reasonably certain.® See Restatement
(Second) of Contracts §§ 351, 352 (1981).

"Additionally, when a damages award would be inadequate, specific
performance or injunctive relief may be appropriate remedies. See
Restatement (Second) of Contracts § 359 (1981) (noting that specific
performance or an injunction may be appropriate when a damages award
would be inadequate); see also Skebba v. Kasch, 724 N.W.2d 408, 413
(Wis. Ct. App. 2006) (specific performance may be warranted in
promissory estoppel claims to prevent injustice).

 

"Most jurisdictions considering this issue hold, as we do today, that
a flexible approach to promissory estoppel damages is optimal. See
Walser v. Tovota Motor Sales, US.A., Inc., 43 F.3d 396, 402 (8th Cir.
1994) (promissory estoppel damages were properly limited to reliance
damages where lost profits were “far from a certainty”); Merex AG.
Fairchild Weston Systems, Inc. 29 F.3d 821, 826 (2d Cir. 1994) (If
successful [on a promissory estoppel claim], the plaintiff is not entitled,
of right, to expectation damages; the court retains the discretion to award
relief to avoid ‘injustice,’ and can mold that relief ‘as justice requires.”);
. is , 156 F.2d 980, 987 (Ist
Cir. 1985) (plaintiff was properly allowed to recover expectation damages
on promissory estoppel claim; “whether to charge full contract damages, or
continued on next page .

 

 

 

 
Whether the district court used the appropriate measure of damages
We now consider whether the district court used the

appropriate measure of damage

 

when it awarded C&S promi

 

sory

 

toppel damages representing the difference between Dynalectric’s bid
and the amount that the three replacement contractors charged C&S to
complete the same work.

Drennan _v, Star Paving Company, 333 P.2d 757, 761 (Cal

1958), the seminal promissory estoppel case in the subcontract bidding

 

context,
situation, In Drennan, a general contractor was preparing a bid for a
construction project. Id, at 758, Before the general contractor submitted
its bid, a subcontractor submitted a bid of $7,131.60 to the general

lustrates how damages should typically be computed in this

 

 

contractor to perform the paving portion of the project. Id, The general
contractor then incorporated the subcontractor's bid into its own bid for
the project. Id, Shortly thereafter, the subcontractor informed the general

~ continued

something less, is a matter of discretion delegated to the district court’);
Green v. Interstate United Management Serv. Corp., 748 F.2d 827, 831
(Bd Cir. 1984) (recoverable damages on promissory estoppel claim were
properly limited to reliance damages given the “manifestly contingent
nature” of the promises in question); Toscano, 21 Cal. Rptr. 3d at 737, 739
(explaining that because promissory estoppel is rooted in equity, trial
courts have the power to “fashion remedies in the interests of justice” and
award damages that are “proven with reasonable certainty”); Hunter v.
Haves, 583 P.2d 952, 954 (Colo. Ct. App. 1975) (‘When a plaintiffs
recovery is predicated on findings of a promise and detrimental reliance
thereon, there is no fixed measure of damages to be applied in every case.
Rather, the amount of damages should be tailored to fit the facts of each
case and should be only that amount which justice requires.”)

 

 
contractor that it would not perform the work for the price it had
originally quoted in its bid, Id. at 758-59. Ultimately, the general
contractor obtained a replacement pavement subcontractor to complete
the work at a cost of $10,948.60. Id, at 759, The Drennan court affirmed

the trial court's determination that the general contractor was entitled to

 

$3,817, the difference between the subcontractor’s bid and the amount
that the general contractor had to pay the replacement subcontractor to
complete the work. Id. at 759, 761.

In the decades since Drennan, courts have consistently and
uniformly applied the same measure of damages for promissory estoppel
claims arising from a subcontractor’s repudiation of its obligations to a
general contractor. See, e.g. John Price Associates, Inc. v. Warner Elec.
Inc, 723 F.2d 755, 756-57 (10th Cir. 1983) (appropriate measure of
damages for general contractor's promissory estoppel claim was the

 

difference between nonperforming electrical subcontractor’s bid and the
bid of the substituted subcontractor that completed the work); Preload
Technology v. A.B. & J. Const. Co. Inc,, 696 F.2d 1080, 1091, 1093 (6th
Cir. 1983) (damages were properly calculated as the difference between
the original subcontractor's bid and the replacement subcontractor's bid);
Janke Const. Co., Inc. v. Vulcan Materials Co,, 527 F.2d 772, 780 (7th Cir.
1976) (general contractor was entitled to award representing the
difference between subcontractor’s quoted prices for certain construction
materials and the cost of replacement materials); Double AA Builders v.
Grand State Const., 114 P.3d 835, 887, 843 (Ariz. Ct. App. 2005)
(upholding award consisting of the difference between nonperforming

insulation subcontractor’s bid and the cost of a replacement

subcontractor); Riley Bros. Constr., Inc, v. Shuck, 704 N.W.2d 197, 204

 

 
0

(Minn. Ct. App. 2005) (damages were properly computed as the difference
between masonry subcontractor’s unperformed bid and the amount paid to
two replacement subcontractors to complete the work); Branco Enterprises
v. Delta Roofing, 886 S.W.2d 157, 158, 161 (Mo. Ct. App. 1994) (award
based upon the difference between roofing subcontractor’s bid and the

amount a substitute subcontractor charged w:

 

necessary to prevent
injustice). We see no reason to depart from the well-established m«
of damages used in Drennan.

Interestingly, despite the consensus that the measure of

 

damages adopted in Drennan is appropriate in the type of situation

 

presented here, courts have not definitively labeled this measure
“expectation” or “reliance” damages. See Edward Yorio & Steve Thel, The
Promissory Basis of Section 90, 101 Yale L.J. 111, 146 (1991) (noting the
ambiguity in the casclaw with respect to classifying this measure of
damages). Scholars appear to agree, however, that the Drennan measure
of damages is, in fact, expectation damages. See id, (concluding that this,
‘measure represents expectation damages, even if occasionally labeled
“reliance damages’); W. David Slawson, The Role of Reliance in Contract
Damages, 76 Cornell L. Rev. 197, 221-22 (1990) (discussing the near
impossibility of proving true reliance damages in the subcontract-bidding
context and indicating that the Drennan measure of damages represents
expectation damages); Charles L. Knapp, Reliance in the Revised
Restatement: The Proliferation of Promissory Estoppel, 81 Colum. L. Rev.
52, 57 n.35 (1981) (noting the ambiguity in the caselaw on this issue and
stating that an award of damages based upon the difference between the
nonperforming subcontractor’s bid and the amount paid to a replacement

subcontractor is “the classic expectation remedy”).

 

 
As previously noted, Dynalectric’s bid was for $7,808,983.
C&S was forced to pay $10,310,598 to three replacement subcontractors to
complete the work that Dynalectrie refused to perform. Thus, the district
court awarded C&S $2,501,615, the difference between Dynalectric’s bid
and the amount C&S paid to the replacement subcontractors. ‘This
measure of damages placed C&S in the same position that it would have
occupied if Dynalectric had performed as it promised, and thus, it
constitutes expectation damages.

It is plain that justice required this measure of damages and
that the damages the district court awarded were foreseeable and
reasonably certain, As the district court found, Dynalectric made an
‘unequivocal promise by submitting a bid to C&S for the electrical
subcontracting of the Project. Dynalectric thereafter repeatedly assured
C&S of the accuracy of the bid that it had submitted. ‘The record
demonstrates that Dynalectric fully anticipated that C&S would rely on
its bid by incorporating it into its own bid for the Prime Contract. The
record also shows that Dynalectric is an experienced and sophisticated
subcontractor that could readily anticipate that C&S would be forced to
use replacement electrical subcontractors at a higher cost to complete the
work that it refused to perform. Finally, the damages that the district
court awarded were reasonably certain because C&S presented detailed
evidence showing that $2,501,615 represented the difference between
Dynalectric’s original bid and the amount that the three replacement
subcontractors charged.

CONCLUSION

‘The district court correctly determined that C&S was entitled
to expectation damages. Justice required using this measure of damages,
and the damages that the district court awarded were foreseeable and

 

 

 

 
reasonably certain. Accordingly, we affirm the district court's judgment

granting C&S expectation damages.