Opinion ID: 2675239
Heading Depth: 3
Heading Rank: 4

Heading: Quantum Meruit or Unjust Enrichment

Text: Central States finally argues that the bankruptcy court misapplied Iowa law when it denied recovery for quantum meruit or unjust enrichment. Quantum meruit denotes a subclass of implied-in-fact contracts for services rendered. Iowa Waste Sys., Inc. v. Buchanan Cnty., 617 N.W.2d 23, 29 (Iowa Ct. App. 2000). To prevail on a quantum meruit theory, the plaintiff must show: (1) services were provided under such circumstances as to give the recipient reason to understand that (a) the services were being performed for the recipient and not some other person, and (b) the services were not rendered gratuitously but with the expectation of compensation from the recipient; and (2) the services were beneficial to the recipient. Roger’s Backhoe Serv., Inc. v. Nichols, 681 N.W.2d 647, 652 (Iowa 2004). Quantum meruit recovery based on an implied-in-fact contract is normally reviewed for clear error under Iowa law when the relief -17- requested is damages. Iowa Waste Sys., Inc. 617 N.W.2d at 30. On the other hand, unjust enrichment is an equitable remedy of restitution. It is a quasicontractual obligation that is created by law for reasons of justice, without any expression of assent, and is limited to the value of what was inequitably retained. We review unjust enrichment claims de novo. Iowa Waste Sys., Inc. 617 N.W.2d at 30. Express and implied contracts cannot coexist with respect to the same subject matter, and Iowa courts will not imply a contract where an express contract exists. Giese Constr. Co. v. Randa, 524 N.W.2d 427, 431 (Iowa Ct. App. 1994). Thus, to the extent that the basis for the claim of quantum meruit is covered by an express contract, a party cannot state a claim for quantum meruit under Iowa law. See Maasdam v. Maasdam’s Estate, 24 N.W.2d 316, 320 (Iowa 1946). The same principle also bars claims for unjust enrichment if the controversy is covered by an express contract. See Iowa Network Servs., Inc. v. Qwest Corp., 363 F.3d 683, 694 (8th Cir. 2004) (holding that under Iowa law, “to the extent that the basis for [plaintiff’s] claim of unjust enrichment is covered by an express contract . . . [plaintiff] cannot state a claim for unjust enrichment under Iowa law.”); Rambo Assocs. v. S. Tama Cnty. Cmty. Sch. Dist., 487 F.3d 1178, 1188–89 (8th Cir. 2007) (stating that under Iowa law “[a] quasi-contractual recovery [of unjust enrichment] is, of course, barred when allowing one would conflict with a specific provision of an express contract.” (citations omitted)). -18- Here, the Superior contract provided for a fixed sum based on the cost of the work up to a guaranteed maximum price. The contract stated that any cost other than costs included in approved change orders that exceeds the guaranteed price would not be reimbursed. The bankruptcy court concluded that the parties had not waived the express contractual requirements for change orders and claims, and therefore declined to award Central States quantum meruit recovery on the disputed change orders. See In re Central States Mech., Inc., 2011 WL 1637991, at . 7 Central States contends the bankruptcy court erred, and points to Rambo Associates, an Eighth Circuit case applying Iowa law. In Rambo Associates, the parties agreed that the client could authorize Rambo to do extra work, with the fees for extra work to be negotiated at a later date. Rambo Assocs., 487 F.3d at 1181–82. But the record showed that the client did in fact ask Rambo to do extra work several times after the initial phase of the work was completed, and never negotiated or set the fees for the extra work performed. Id. at 1183. The court found that quasi-contractual remedies were appropriate in large part because the client specifically requested Rambo do the extra work, and, therefore, allowing 7 The bankruptcy court did allow Central States to recover in quantum meruit for the water treatment facility, but found that the water treatment facility was distinguishable from the other claims under the Superior contract because when Agra and Central States signed the Superior contract in 2006, the water treatment facility “was not in the picture and not contemplated in the Subcontract.” In re Central States Mech., Inc., 2011 WL 1637991, at . -19- the client to retain the value of the extra work would be inequitable. Id. at 1189. Here, by contrast, Central States has not shown that Agra specifically requested it to perform the out-of-scope work on the disputed change orders without an approved change order. Further, in light of the contract’s specific warnings that out-of-scope work performed without a change order was done at Central States’s peril, the bankruptcy court correctly concluded that additional damages were not warranted. Accordingly, because an implied-in-fact remedy would conflict with the express provisions of the contract, the bankruptcy court did not err in refusing to award Central States additional economic impact damages based on quantum meruit or unjust enrichment. B. Agra’s Damages for Costs of Completing the Plymouth Project Central States next contends that the bankruptcy court erred in awarding Agra damages based on the costs of completing the Plymouth project with another subcontractor. Central States claims that it had a right to suspend performance because Agra’s prior material breaches excused Central States’s continued performance. Even if Central States had no right to suspend performance, it argues that the bankruptcy court erred by awarding Agra damages without any proof that Agra’s costs were caused by Central States’s suspension (as opposed to delays by Delta-T). -20- 1. Central States’s Right to Suspend Performance Central States claims that it was entitled to suspend performance because Agra breached the Plymouth contract by: (1) failing to notify Central States of delays caused by Delta-T; (2) failing to timely process change orders; (3) failing to timely progress payments; and (4) violating the covenant of good faith and fair dealing. Central States essentially recycles its arguments from the Superior contract regarding Agra’s alleged material breach based on Agra’s failure to notify Central States of delays in getting materials and failure to timely process change orders. Although the bankruptcy court found that Agra’s handling of change orders at Plymouth was “less than responsive” and that at one point Agra instructed Central States to “stop sending change orders,” 8 the bankruptcy court also found that Central States did not adhere to the delay notice and claim procedures. In re Central States Mech., Inc., 2011 WL 1637991, at –90, 123–24. Because Central States did not comply with the delay notice and claim procedures, Agra had no duty to timely expedite the change orders. For the same reasons Central States failed to show a material breach of the Superior contract based on Agra’s 8 The bankruptcy court noted that Agra’s statement to “stop sending change orders” did not imply a waiver of the change order process because this statement conformed to the subcontract provisions, i.e., that Central States would submit written claim notices and Agra would then render a change order for Central States in conformity with the claim notice. In re Central States Mech., Inc., 2011 WL 1637991, at  n.290. -21- delays, we agree with the bankruptcy court that Central States fails to show Agra materially breached the Plymouth contract when it failed to timely process change orders or notify Central States of foreseen delays in the work. We also are not persuaded Agra materially breached the contract by failing to timely process payments to Central States. The bankruptcy court found that Agra had timely paid Central States on its first nine pay applications, and, only days before Agra partially rejected Pay Application 10, Agra had paid Central States $930,000 on Pay Application 9. The bankruptcy court also found that Agra did not materially breach the Plymouth contract by partially rejecting one of Central States’s pay applications. Under the terms of the Plymouth contract, Central States was entitled to stop work only if Agra did not pay Central States through no fault of Central States. And Agra was entitled to reject pay applications and demand substantiation before making payment. The bankruptcy court found that Central States never substantiated the percentage completion as Agra requested prior to approval. The court also found that Agra’s payment was not yet due by the time Central States walked off the Plymouth Project. We find no clear error in the bankruptcy court’s conclusion that Agra did not breach the Plymouth contract. Finally, Agra did not violate the implied covenant of good faith and fair dealing. Iowa recognizes the implied covenant of good faith and fair dealing in every contract that “the person for whom the work is contracted to be done will -22- not obstruct, hinder, or delay the contractor, but, on the contrary, will in all ways facilitate the performance of the work to be done by him.” Kaltoft v. Nielsen, 106 N.W.2d 597, 602 (Iowa 1960). The bankruptcy court found that Agra partially rejected one of the pay applications because, based on its observations and a letter in which Central States stated twenty weeks worth of piping needed to be completed, it concluded that the stated completion figure was inaccurate. But on the same day it rejected Central States’s pay application, Agra nevertheless certified to the owner of the plant in Agra’s own pay application that the plant was nearly complete, using the completion figure that Central States claimed. The bankruptcy court found plausible Agra’s explanation of this discrepancy as unrelated to Central States’s completion of the Plymouth project. 9 In fact, the bankruptcy court noted that it was Central States who actually breached the implied covenant of good faith and fair dealing by walking off the Plymouth project and never supplying the requested documentation to substantiate its pay application. The bankruptcy court’s resolution of this discrepancy is not clearly erroneous. Agra needed cash from the owner before it could pay Central States, 9 Agra’s chief financial officer testified that Agra inflated the percentage completion figure because the owner refused to release contingency funds, which affected Agra’s cash flow. Because the owner did not pay Agra but Agra still had to pay Central States, Agra was behind on cash flow. As a result, Agra inflated the percentage because the underfunded contingency should have been in place to cover the situation, and at the time Agra was $400,000 behind on cash flow. -23- which was why it certified the percentage completion to the owner even as it simultaneously rejected Central States’s request. Agra’s rejection was based on its perception that the project was further behind than Central States claimed, and it was entitled to ask for substantiation of the stated percentage of completion. 2. Proof of Causation of Agra’s Damages Central States next argues that the bankruptcy court erred in awarding Agra its costs of completion without requiring Agra to prove the amount of damages attributable to Central States’s breach. Central States claims that much of the costs that Agra ultimately paid to the replacement subcontractor (Wanzek) were due to Delta-T’s delays and not to Central States’s breach. Central States claims that it would have been entitled to be reimbursed for the extra costs due to Delta-T’s delay had it remained on the job and, therefore, that it should not have to pay the added costs due to Delta-T’s delay. We review the amount of damages calculated by the trial court for clear error and questions of law de novo. Southern Colo. MRI, Ltd. v. Med-Alliance, Inc., 166 F.3d 1094, 1100 (10th Cir. 1999). The methodology the trial court uses in calculating a damage award is a question of law we review de novo. Id. At trial, Agra produced evidence showing that the amount Agra had to pay Wanzek, the replacement contractor, for work that was within the scope of Central States’s work was $4,604,610. According to the terms of the contract, Agra was entitled to charge Central States for these costs, as well as a 15% fee, because the work -24- Wanzek performed was within the scope of Central States’s work. Agra also incurred “non-Wanzek costs” to complete Central States’s scope of the work, totaling $817,398. In re Central States Mech., Inc., 2011 WL 1637991, at . Finally, under the Plymouth contract, Agra was entitled to charge Central States for liquidated damages of $4,000 per day for the number of days it took to complete the job. The bankruptcy court awarded Agra $2,992,259— Agra’s “costs to complete Central States’s scope of work”—as well as $96,000 in liquidated damages for the amount of time it took to mobilize Wanzek for the job, a total of $3,088,259. This finding was not clearly erroneous. Under the terms of the contract, Central States was obligated to perform its scope of the work within the time allotted by the contract unless Central States obtained a valid extension of the substantial completion date. The only way to obtain a valid extension of the substantial completion date was giving Agra notice of a delay, submitting a delay claim, and obtaining an approved change order. The bankruptcy court found that Central States failed to comply with the delay notice and claim procedures, and therefore was not entitled to an extension of time. This finding is not clearly erroneous, because the delay notices and claims were dated well after the deadlines required in the contract, and, as we have previously stated, Agra did not waive compliance with the notice and claim procedures. Therefore, Central States would not have been entitled to recover any additional costs to complete -25- work that was within the scope of its work, even if the costs of completion were increased as a result of Delta-T’s delay. We therefore see no error in the bankruptcy court’s finding that Agra was entitled to damages based on the costs of completion of work that was within Central States’s scope of the work at the time it walked off, as well as liquidated damages based on the time Wanzek took to complete Central States’s work. C. Attorneys’ Fees Finally, Central States argues that it was a substantially prevailing party under the Superior contract 10 and should have been awarded attorneys’ fees. Central States contends that, even though it was the net loser in bankruptcy court, it was the substantially prevailing party on its damages claims under the Superior contract because the bankruptcy court “accepted Central’s theories of liability”; awarded Central damages of over $500,000; and “completely rejected Agra’s defenses.” Aplt. Br. at 55–56. Under Iowa law, the trial court’s decision to award attorneys’ fees is reviewed for an abuse of discretion and will only be reversed when the trial court “rests its discretionary ruling on grounds that are clearly unreasonable or untenable.” Boyle v. Alum-Line, Inc., 773 N.W.2d 829, 832 (Iowa 2009). 10 The Superior contract included a provision requiring the losing party to pay reasonable costs, including attorneys’ fees, to the “substantially prevailing party” in any litigation to enforce the terms of the contract. App. 3393. -26- Iowa courts have not precisely addressed the issue of which party is the “substantially prevailing party” when the plaintiff has recovered on some of its claims and the defendant has recovered on its counterclaims. But the Iowa Supreme Court has held in at least one case that tying “the recovery of fees to a precise ratio of the amount of damages awarded over the amount demanded” is inappropriate in determining whether the plaintiff is a prevailing party. Vaughan v. Must, Inc., 542 N.W.2d 533, 541 (Iowa 1996) (construing whether plaintiff in Federal Age Discrimination in Employment Act and analogous state cause of action was prevailing party). Other courts addressing this issue have adopted the “net prevailing party” rule, under which costs should be awarded to the plaintiff if its recovery exceeds the defendant’s recovery on a counterclaim. See, e.g., Nw. Airlines, Inc. v. Flight Trails, 3 F.3d 292, 297 (8th Cir. 1993) (holding that under Minnesota law, “‘[p]revailing party’ means the winner of the lawsuit” and rejecting defendant’s claims that it was a prevailing party because it received significant setoffs); Olsen v. Lund, 246 P.3d 521, 522–24 (Utah 2010) (determining the prevailing party begins by “identifying the party in whose favor the net judgment is entered” and requires “not only consideration of the significance of the net judgment in the case, but also looking at the amounts actually sought and then balancing them proportionally with what was recovered . . . Consequently, a party that makes an outrageous claim and then receives only a fraction of what it demanded—though -27- the net judgment winner—will not likely be deemed the successful party.” (citations and internal quotation marks omitted)); Schmidt v. Colonial Terrace Assocs., 694 P.2d 1340, 1345 (Mont. 1985) (“Defendants succeeded in realizing, at the end of the case, a net judgment in their favor, and thus prevailed on the main issue in controversy.”); Szoboszlay v. Glessner, 664 P.2d 1327, 1334 (Kan. 1983) (holding that a plaintiff was a prevailing party if he obtained a judgment for an amount “in excess of the setoff or counterclaim allowed,” even though the defendant was allowed some recovery on a counterclaim); Trollope v. Koerner, 515 P.2d 340, 344 (Ariz. 1973) (“[A] party will be ‘successful’ if he obtains judgment for an amount in excess of the setoff or counterclaim allowed”); Nordin Constr. Co. v. City of Nome, 489 P.2d 455, 474 (Alaska 1971) (“A simple balancing of the recovery in favor of each party makes it clear that the City was the prevailing party in this lawsuit and should have been awarded costs”). Some courts leave it to the sole discretion of the trial court to determine which party, if any, is the prevailing party “[w]hen a case involves many claims, some of which are successful and some of which are not.” Archer v. Farmer Bros. Co., 90 P.3d 228, 231 (Colo. 2004); see also Holmes v. Holmes, 874 P.2d 595 (Idaho Ct. App. 1994) (outlining statutory factors that should guide trial court’s discretion in determining which party prevailed and allowing the trial court to find that a party to an action prevailed only in part and apportion costs accordingly). -28- And the United States Supreme Court, in construing the term “prevailing party,” in the context of civil rights fee-shifting statutes like 42 U.S.C. § 1988, has held that a plaintiff prevails if he is awarded some relief by the court. See Farrar v. Hobby, 506 U.S. 103, 111–12 (1992) (holding that “a plaintiff ‘prevails’ when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defendant’s behavior in a way that directly benefits the plaintiff”); see also Buckhannon Bd. & Care Homes, Inc. v. W.Va. Dep’t of Health & Human Res., 532 U.S. 598, 603 (2001) (noting that a prevailing party is a “party in whose favor a judgment is rendered, regardless of the amount of damages awarded” or “one who has been awarded some relief by the court”). On the other hand, a “reduced fee award is appropriate if the relief, however significant, is limited in comparison to the scope of the litigation as a whole.” Hensley v. Eckerhart, 461 U.S. 424, 440 (1983). Central States argues that under the Supreme Court’s definition of “prevailing party,” it is entitled to attorneys’ fees because it was awarded some measure of relief that altered the parties’ legal relationship: approximately $550,000 in damages based on the unpaid balance of the guaranteed maximum price, interest on late progress payments, and cost of its work on the water treatment plant. Agra contends that Central States was not the substantially prevailing party because Central States was the net loser in the case as a whole, since Central States was forced to pay Agra nearly $2,600,000 after Agra’s setoffs -29- were taken into account. Alternatively, Agra contends that Central States was not the prevailing party on the Superior contract because Agra never substantially contested at least two of the three damage awards Central States received—the unpaid balance of the contract and the interest on the late progress payments. The bankruptcy court found that Central States would be “hard pressed to claim ‘victory,’ either on the Superior Subcontract, or the case as a whole.” In re Central States Mech., Inc., 2011 WL 1637991, at . Regarding Superior, the bankruptcy court noted that Central States did not prevail on the largest portion of its Superior claims—the $1.134 million impact claim—and that most of the damages it did recover under the contract were not contested by Agra. 11 The bankruptcy court also stated that “[i]n addition, Central States’s $3 million breach of the Plymouth Subcontract more than offsets its Superior recovery.” Id. at . No matter whether we adopt the definition that a prevailing party is one who prevails on a “significant issue” or one who is the net winner, we cannot say Central States was a substantially prevailing party under Iowa law. Although Central States did receive three damages awards under the Superior contract, none 11 The bankruptcy court awarded Central States a little over $302,000 for the unpaid balance of the Superior contract, $242,535 for the work on the water treatment facility, and $5,100 in interest on late progress payments, for a total of approximately $550,000. Agra did not “vigorously” contest either the interest calculation or the unpaid balance. In re Central States Mech., Inc., 2011 WL 1637991, at . Thus, the only part of Central States’s award that was contested was the $242,000 for the water treatment facility. -30- of these damages claims was a “significant issue” in the litigation between Central States and Agra. The unpaid balance and interest on progress payments were not substantially contested or major issues at trial. And neither was the $242,535 costs of work on the water treatment plant. Rather, the main issues at trial were Central States’s $1.3 million impact damages claim and Agra’s over $3 million counterclaim against Central States for its alleged breach of the Plymouth contract. Central States lost on both of these claims, and was overall the net loser. After the bankruptcy court set off Agra’s damages by the amount it owed to Central States, the aggregate damages Agra was entitled to receive amounted to over $2 million. Under either the “significant issue” test or the “net prevailing party” test, the bankruptcy court did not err in concluding that Central States was not a substantially prevailing party. As a result, the bankruptcy court did not abuse its discretion in refusing to award attorneys’ fees to Central States.