Opinion ID: 498428
Heading Depth: 1
Heading Rank: 2

Heading: The Sanchez Appeal

Text: 18 It is well established that an action in quantum meruit is available to a subcontractor to recover from a breaching contractor under the Miller Act. 2 Wunderlich Contracting Co. v. United States, 240 F.2d 201 (10th Cir.), cert. denied, 353 U.S. 950, 77 S.Ct. 861, 1 L.Ed.2d 859 (1957); Southern Painting Co. of Tenn. v. United States, 222 F.2d 431, 433 (10th Cir.1955); see also United States ex rel Coastal Steel Erectors, Inc. v. Algernon Blair, Inc., 479 F.2d 638 (4th Cir.1973). Recovery in quantum meruit is measured by the reasonable value of the subcontractor's performance. Southern Painting, 222 F.2d at 433-34, (citing United States ex rel Susi Contracting v. Zara Contracting Co., 146 F.2d 606, 610 (2d Cir.1944)). The standard for measuring the reasonable value of the subcontractor's performance is frequently defined as the amount for which such services could have been purchased from one in the plaintiff's position at the time and place the services were rendered. Coastal Steel, 479 F.2d at 641, (citing United States ex rel F.E. Robinson Co. v. Alpha-Continental, 273 F.Supp. 758, 777 (E.D.N.C.1967), aff'd 404 F.2d 343 (4th Cir.1968), cert. denied, 395 U.S. 922, 89 S.Ct. 1774, 23 L.Ed.2d 239 (1969)). The value of the services provided is not limited by the contract price. Thus, [t]he impact of quantum meruit is to allow a promisee to recover the value of services he gave ... irrespective of whether he would have lost money on the contract and been unable to recover in a suit on the contract. Coastal Steel, 479 F.2d at 641. 19 This standard is clearly applicable to the Sanchez claim. The trial court found that Sanchez underbid the subcontract and would have lost money if the subcontract had been completed. Accordingly, the court granted Sanchez' quantum meruit claim and calculated the reasonable value of the services rendered. Sanchez appeals the award as inadequate, arguing that the district court improperly calculated the value of the services rendered prior to the termination of the subcontract by Western. 20 The trial court found that the reasonable value of the earthwork subcontract was $475,000. It should be noted that Western disputes that finding, arguing that the Sanchez bid (less than $300,000) and later bids by CJC and Metcalf 3 demonstrate a lower value. The trial court's finding is not clearly erroneous and we will not disturb it. The trial court also found that Sanchez completed 40% of the earthwork subcontract, apparently relying on the testimony of Morrison, who was Sandia's surveyor, and Hugg, who was hired by Western to cross-section Sanchez' work and estimate the percentage of earthwork completed. Sanchez disputes that finding. First, Fred Sanchez testified that he had completed approximately 70% of the earthwork. Second, Sanchez argues that the estimates of Hugg and Morrison were merely guesswork, and that the data compiled by the two surveyors can be interpreted to show a much higher completion percentage. Again, there is evidence in the record to support the district court's finding and it is not clearly erroneous. 21 The court then determined that the reasonable value of the work performed by Sanchez was 40% of $475,000, or $190,000. Sanchez argues that the court's methodology underestimated the value of his work because the percentage of earth moved does not necessarily equate with the costs incurred. In other words, [w]hile the job may be only forty percent (40%) complete in terms of volume of total earth to be moved into place, it may be already eighty percent (80%) complete in terms of the cost of moving such earth. Brief for Sanchez at 9. Sanchez argues that the actual costs incurred by Sanchez (estimated at $360,902.50) are a better measure of the value of the work done. Although the district court's reasoning is not completely clear, we believe that the court could not properly rely on Sanchez' unit prices to determine the reasonable value of the work because the testimony indicated that Sanchez was (1) not always moving earth in the most efficient manner; and (2) not always moving it to the right place. Thus, the amount of earth moved and the time required by Sanchez does not provide a reliable estimate of the value of that performance to Western. We see no reason to alter the value of Sanchez' performance as calculated by the district court. 22 Finally, the district court reduced the award to Sanchez by deducting $40,000 as the cost of correcting errors made by Sanchez. Sanchez argues that this adjustment was incorrect. After reviewing the claims made by Sanchez, we find (1) the trial court's finding that Sanchez' work was defective in some respects is not clearly erroneous; (2) similarly, the trial court's estimate that correcting those errors cost Western $40,000 is not clearly erroneous; and (3) the theory of the award to Sanchez--quantum meruit--requires that the court deduct the cost of corrective work to properly arrive at the value of performance. 4 See W.F. Magann Corp. v. Diamond Mfg. Co., Inc., 775 F.2d 1202, 1208 (4th Cir.1985) (a threshold requirement for recovering quantum meruit damages is that the defendant receive the benefit of the plaintiff's performance. Otherwise, the defendant cannot be unjustly enriched.); Leo Spear Constr. Co. v. Fidelity and Casualty Co. of New York, 446 F.2d 439, 443-44 (2d Cir.1971) (deductions for corrective work in quantum meruit recovery); Restatement (Second) of Contracts Sec. 373 comment d (1979) (the party in breach is liable only to the extent that he has benefited from the injured party's performance.). 23 Sanchez also argues that the trial court erred by not increasing the award by the value of extra rock excavation. The trial court did find that the plans prepared by Sandia significantly underestimated the rock excavation to be done on the project and that Sanchez did excavate much more rock than called for by the plans. However, these findings were, in part, the basis for the court's quantum meruit award. Sanchez was unable to recover for the extra rock excavation under the contract because it failed to seek a change order as required by the terms of the contract. 5 Under a quantum meruit theory, Sanchez may recover the reasonable value of the work performed. As noted earlier, in this context, the award is measured by the value of the work to Western, not the costs incurred by Sanchez. This is a difficult question, because the trial court's estimate of the reasonable value of the earthwork subcontract may not have included the extra rock excavation. However, after a careful review of the record, we are unable to find a clear error by the trial court. Although the trial court did not explicitly find that the extra rock excavation was included in its estimate of the value of the earthwork subcontract, such a finding is implicit. 24 Finally, Sanchez relies on a contract theory to suggest an alternative damage award. Western demonstrates that under a properly calculated contract damage award, the award to Sanchez would actually be reduced. We find no merit in Sanchez' contract claim. Similarly, we reject Sanchez' claim that $30,000.00 in profits should be added to the court's quantum meruit award. The evidence supports the trial court's finding that Sanchez would have made no profit on the contract.
25 Sanchez also urges this court to modify the district court's judgment and award prejudgment interest on the amount due from Western. We decline. We have held that it is proper to award interest in Miller Act cases if allowed by state law. Arnold v. United States, 470 F.2d 243, 246 (10th Cir.1972). However, subsequent to our decision in Arnold, the United States Supreme Court held, in considering an award of attorneys' fees under the Miller Act, that the Act provides a federal cause of action, and the scope of the remedy as well as the substance of the rights created thereby is a matter of federal not state law. F.D. Rich, Inc. v. United States ex rel Indus. Lumber Co., 417 U.S. 116, 127, 94 S.Ct. 2157, 2164, 40 L.Ed.2d 703 (1974). While the Court's holding is not expressly applicable to the question of prejudgment interest, a fair reading of the Court's language includes awards of interest. In light of this conflict, we adopt the reasoning of the United States Court of Appeals for the Fifth Circuit when faced with the identical question: 26 Since prejudgment interest falls within the scope of the remedy available to a Miller Act claimant, it appears that under the authority of F.D. Rich, its allowance must be initially determined as a matter of federal law. 27 Such a determination, however, merely leads us back to state law. Neither the Miller Act nor any other applicable federal law provides standards for the allowance of prejudgment interest. It therefore seems appropriate to look to state law as a matter of convenience and practicality. 28 United States ex rel Georgia Elec. Supply Co., v. U.S. Fidelity and Guar. Co., 656 F.2d 993, 997 (5th Cir. Unit B 1981) (quoting in part, Louisiana & Arkansas Ry. Co. v. Export Drum Co., 359 F.2d 311, 317 (5th Cir.1966)); 6 see also United States ex rel Seminole Sheet Metal Co. v. SCI, Inc., 828 F.2d 671, 677-78 (11th Cir.1987) (looks to Florida law on prejudgment interest); United States ex rel. J.R. Canion v. Randall & Blake, 817 F.2d 1188, 1193 (5th Cir.1987) (looks to Texas law on prejudgment interest); United States ex rel De Blasio Constr., Inc. v. Mountain States Constr., 588 F.2d 259, 263-63 (9th Cir.1978) (looks to Washington law on prejudgment interest). 29 In New Mexico, where the amount of indebtedness under the contract is ascertainable by the breaching party, the injured party is entitled to interest as a matter of right on those monies at the legal rate. Grynberg v. Roberts, 102 N.M. 560, 698 P.2d 430, 432 (1985) (emphasis in original); see N.M.Stat.Ann. Sec. 56-8-3 (Supp.1987). The New Mexico Supreme Court has held that the New Mexico statute governing prejudgment interest should be construed according to the Restatement of Contracts Sec. 337 (1932), 7 Shaeffer v. Kelton, 95 N.M. 182, 619 P.2d 1226, 1231 (1980); O'Meara v. Commercial Ins. Co., 71 N.M. 145, 376 P.2d 486, 490-91 (1962), and has described the standard for awarding prejudgment interest with a variety of language. For example, prejudgment interest is awarded where the amount of the debt is a mere matter of calculation, Allsop Lumber Co. v. Continental Casualty Co., 73 N.M. 64, 385 P.2d 625, 634 (1963); where the exact sum of the indebtedness can be readily ascertained, O'Meara, 376 P.2d at 490; or where the amount owed is 'ascertainable by a mathematical calculation from a standard fixed in the contract or from established market prices.'  Grynberg, 698 P.2d at 432 (quoting Restatement of Contracts Sec. 337(a) (1932)). 30 Sanchez is unable to claim prejudgment interest under any of these formulations of the New Mexico rule. The trial court's award was based, not on any standard in the subcontract, but on an approximation of the reasonable value of Sanchez' work and an estimate of the amount of the contract completed by Sanchez, after considering the conflicting evidence presented at the trial. Neither of these figures was certain or ascertainable from the contract terms at the time Western breached the subcontract. There is no basis for reversing the trial court's decision not to award Sanchez prejudgment interest.
31 The question of attorneys' fees in a Miller Act action is a matter of federal law. F.D. Rich, 417 U.S. at 127, 94 S.Ct. at 2164. In F.D. Rich, the Supreme Court reversed an award of attorneys' fees by a federal court applying California law to a Miller Act suit. The Act does not provide attorneys' fees for the prevailing party. Absent a provision in the contract or payment bond awarding attorneys' fees, a Miller Act plaintiff may only recover under one of the federally recognized exceptions to the general principle that each party should bear the costs of its own legal representation. Id. at 129, 94 S.Ct. at 2165. See also United States ex rel Youngstown Welding and Engineering Co. v. Travelers Indem. Co., 802 F.2d 1164, 1166 (9th Cir.1986) (No fee award is permitted under the Miller Act unless one of the traditional exceptions to the American Rule is established.). Specifically, attorneys' fees may be awarded to a successful party when his opponent has acted in bad faith, vexatiously, wantonly, or for oppressive reasons ... F.D. Rich, 417 U.S. at 129, 94 S.Ct. at 2165. Alternatively, an award of fees may be proper where a successful litigant has conferred a substantial benefit on a class of persons and the court's shifting of fees operates to spread the costs proportionately among the members of the benefited class. Id. at 129-30, 94 S.Ct. at 2165. Neither of these exceptions is applicable to Sanchez' claim and we find no abuse of discretion in the district court's decision denying attorneys' fees.