Opinion ID: 498428
Heading Depth: 1
Heading Rank: 3

Heading: The CJC Appeal

Text: 32 CJC argues that the district court improperly denied CJC's claim for prejudgment interest on the recovery from Western. While we are confident that Sanchez is not entitled to prejudgment interest, the claim of CJC presents a different question. The two judgments, both for the reasonable value of the subcontractors' performance under a theory of quantum meruit, were calculated in different ways. In determining the value of Sanchez' work, the trial court ignored the subcontract and calculated the value from other evidence. In contrast, the quantum meruit award to CJC was calculated by reference to the invoices submitted by CJC which were based on the hourly rates included in the contract. In other words, the award was ascertainable by mathematical calculation from a standard fixed in the contract. Grynberg v. Roberts, 102 N.M. 560, 698 P.2d 430, 433 (1985) (quoting Restatement of Contracts Sec. 337(a) (1932)). See also, Restatement (Second) of Contracts Sec. 354 comment c (1979) (The sum due is sufficiently definite [to award prejudgment interest] if it is ascertainable from the terms of the contract, as where the contract fixes a price per unit of performance, even though the number of units performed must be proved and is subject to dispute.). Moreover, Western did not dispute the value of CJC's performance, as measured by the unit prices in the contract, but instead, argued that CJC had breached the contract, leaving CJC liable to Western for damages incurred in completing the earthwork. See Defendant's Answer, Affirmative Defenses and Counterclaim, R.Vol. I., at 107-12. Thus, the focus of the trial and the dispute was not the value of CJC's performance, but which party had breached the contract. In addition, as indicated above, the amount due under the subcontract was readily ascertainable by Western at the time it breached the contract. Again, the New Mexico Supreme Court has noted that receipt of an invoice showing the amount owed is sufficient notice to a reasonable person of the amount in which he is indebted under his contract. Grynberg, 698 P.2d at 433. 33 Western argues, however, that because the trial court based the award to CJC on a quantum meruit theory, prejudgment interest is unwarranted. In other words, because a quantum meruit recovery must, of necessity, be calculated after trial, such an award is, by its very nature, unascertainable and not susceptible to prejudgment interest. 8 Normally, this statement is correct. See, e.g., McCarty Corp. v. Pullman-Kellogg, Div. of Pullman, Inc., 751 F.2d 750, 762 (5th Cir.1985) (applying Louisiana law). However, this is not an unyielding rule. See Kisco Co. v. Verson Allsteel Press Co., 738 F.2d 290, 296 (8th Cir.1984) (Prejudgment interest may be awarded in an action in quantum meruit.) (applying Missouri law); United States ex rel Confederate Constr. Co. v. United States Fidelity and Guar. Co., 644 F.2d 747, 749 (8th Cir.1981) (affirms award of prejudgment interest on subcontractor's Miller Act claim for earthwork done outside written contract); Paul Hardeman, Inc., v. Arkansas Power & Light Co., 380 F.Supp. 298, 342 (E.D.Ark.1974) (applying Arkansas law); 11 Williston on Contracts, Sec. 1415 (3d ed. 1968) (Interest is allowed not simply when an express contract is broken but also where money is wrongly withheld by the defendant and the plaintiff's right is based on quasi-contract.). In fact, this court, applying New Mexico law to a Miller Act dispute in Fanderlik-Locke Co. v. United States ex rel M.B. Morgan, 285 F.2d 939, 948 (10th Cir.1960), cert. denied, 365 U.S. 860, 81 S.Ct. 826, 5 L.Ed.2d 823 (1961) affirmed an award of prejudgment interest on a portion of a quantum meruit award which was susceptible to accurate calculation. 34 Thus, in certain circumstances, where the trial court must rely on the theory of quantum meruit to permit recovery for work performed outside the written contract but also relies on the express terms of that contract to determine the value of that work, the injured party is entitled to prejudgment interest. We believe that CJC's claim falls within this narrow exception. We see no reason to penalize CJC further for Western's breach of the contract, or to allow Western to benefit from the breach by having the free use of the money owed to CJC during this period. 35 Finally, awarding prejudgment interest to CJC in this case is consistent with the purpose of interest as an element of damages. 36 Awarding prejudgment interest is intended to serve at least two purposes: to compensate prevailing parties for the true costs of money damages incurred, and, where liability and the amount of damages are fairly certain, to promote settlement and deter attempts to benefit unfairly from the inherent delays of litigation. 37 Stroh Container Co. v. Delphi Industries, Inc., 783 F.2d 743, 752 (8th Cir.), cert. denied, 476 U.S. 1141, 106 S.Ct. 2249, 90 L.Ed.2d 695 (1986); see also Turner v. Japan Lines, Ltd., 702 F.2d 752, 756 (9th Cir.1983) (purpose of prejudgment interest is to compensate the wronged person for being deprived of the monetary value of the loss from the time of the loss to the payment of the money judgment); United Nuclear Corp. v. Allendale Mut. Ins. Co., 103 N.M. 480, 709 P.2d 649, 657 (1985) (Prejudgment interest is meant to compensate a plaintiff for injury resulting from deprivation of the promised performance and for loss of the use and earning power of plaintiff's own funds that have been expended as a result of a defendant's failure to pay.) (citation omitted). In this case, Western has deprived CJC of the use of a certain sum and CJC was forced to borrow money to meet financial obligations incurred as a result of Western's breach of the subcontract. An award of interest will partially compensate CJC and, because Western had notice of the amount due, there is no unfairness to Western. See Grynberg, 698 P.2d at 432-33. 38 We therefore reverse the district court's judgment and award CJC interest at the rate of 15% annually on $78,636.66 from September 15, 1982 to the date of judgment and interest at the rate of 15% annually from October 15, 1982 on $78,541.14. 9 We have chosen to apply the interest rate from the current New Mexico statute governing prejudgment interest, N.M.Stat.Ann. Sec. 56-8-3 (Supp.1987), even though we recognize that the statutory rate at the time the debt was incurred was 10% and CJC's appeal requested that rate. As noted earlier, prejudgment interest awards on Miller Act claims are governed by federal law. Thus, we are free to choose an interest rate which will fairly compensate the plaintiff for the delay in the receipt of payment. United States v. West Virginia, 764 F.2d 1028, 1031 (4th Cir.1985), aff'd, --- U.S. ----, 107 S.Ct. 702, 93 L.Ed.2d 639 (1987); see Royal Indem. Co. v. United States, 313 U.S. 289, 296, 61 S.Ct. 995, 997-98, 85 L.Ed. 1361 (1941); United States v. Dollar Rent-A-Car Systems, 712 F.2d 938, 941 (4th Cir.1983). The current New Mexico statutory rate accomplishes that purpose. Finally, we are not awarding prejudgment interest on the $3,206.47 awarded CJC by the district court as reimbursement for costs incurred in moving equipment from the construction site. The record does not indicate that Western received notice or an invoice for this claim before the complaint was filed and it is clear that Western had no notice of this claim when it breached the contract on September 15, 1982 as CJC did not leave the site until after that date.
39 CJC also appeals the trial court's decision denying its claim for attorneys' fees. As noted earlier in regard to Sanchez' claim for attorneys' fees, absent a contrary provision in the subcontract, a subcontractor may not recover attorneys' fees in a Miller Act claim without first establishing one of the federally recognized exceptions to the traditional American Rule that each party is responsible for its own fees. F.D. Rich, 417 U.S. at 127-30, 94 S.Ct. at 2164-65. In other words, CJC must show that Western acted in bad faith. 40 CJC argues that Western's representations inducing CJC to sign the contract and refusal to pay for the work performed demonstrate the required bad faith. However, we are bound by the trial court's findings of fact unless clearly erroneous and the trial court did not find bad faith on the part of Western. We decline to read the trial court's findings regarding the representations made to CJC and Western's supervisory problems as broadly as CJC suggests. While those findings may raise questions regarding Western's competence and integrity as a contractor and indicate confusion, mismanagement and even misrepresentation, Western's actions did not rise to the level that would support an award of attorneys' fees to CJC. 10 41 Alternatively, CJC argues that attorneys' fees must be awarded to fully compensate CJC under a quantum meruit theory. CJC mischaracterizes this theory of recovery. The subcontractor recovering in quantum meruit is entitled to the reasonable value of his performance. Southern Painting, 222 F.2d at 434. The legal costs of recovering the value of that performance do not increase the value of performance and are not recoverable as part of the quantum meruit award. To the extent that CJC remains less than fully compensated, this merely restates one of the oft-repeated criticisms of the American Rule. F.D. Rich, 417 U.S. at 128, 94 S.Ct. at 2164. 42 Finally, the subcontract between CJC and Western provided that the subcontractor, CJC, would be liable for attorneys' fees in the event CJC breached the contract. No similar provision protected the subcontractor, yet CJC urges, based on principles of reciprocity and mutuality of obligation in contract, Brief for CJC at 17, that we construe the clause as mutual. We reject this suggestion for two reasons. First, CJC is recovering outside the contract, on a theory of quantum meruit. The provision is not relevant. Second, CJC cites no authority which indicates that such a construction of the contract provision is appropriate in these circumstances and we decline to make such a dramatic change in the agreement of the parties.
43 CJC asks us to modify the district court's judgment and award consequential damages. Specifically, CJC notes that as a result of Western's failure to pay CJC when due under the contract, CJC has been forced to pay interest on equipment rental charges and borrowed funds. Once again, we begin by considering the basis for the district court's award. CJC has recovered the reasonable value of its performance under a theory of quantum meruit. As we noted in our discussion of prejudgment interest, such an award does not necessarily bar recovery of all other damages, but that is normally the case. CJC points to no federal or New Mexico law nor compelling circumstances that would lead us to alter the district court's judgment and award consequential damages in addition to the quantum meruit recovery. 44 CJC also relies on the provision in the subcontract designed to hold CJC harmless from the actions of the previous earthworking subcontractor, linking the interest payments to the work required to repair the Sanchez errors. Even if we were inclined to enforce this contractual provision in addition to the quantum meruit award, it affords CJC no relief. The consequential damages incurred flowed from Western's breach of the subcontract, the failure to pay, rather than from any actions of the prior subcontractor. CJC cannot stretch the hold harmless provision that far.
45 Finally, CJC argues that the trial court erred in failing to award punitive damages. Punitive damages are not normally recoverable for a breach of contract. See Restatement (Second) of Contracts Sec. 355 (1979) (Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.). However, New Mexico law allows recovery of punitive damages for a breach of contract in extraordinary circumstances. 11 New Mexico courts may award punitive damages in a contract action where the conduct of the party breaching the contract may be characterized as maliciously intentional, fraudulent, oppressive, or committed recklessly or with a wanton disregard of the plaintiffs' rights. Loucks v. Albuquerque Nat'l Bank, 76 N.M. 735, 418 P.2d 191, 199 (1966). See State Farm General Ins. Co. v. Clifton, 86 N.M. 757, 527 P.2d 798, 800 (1974); Robison v. Katz, 94 N.M. 314, 610 P.2d 201, 208 (Ct.App.), cert. denied, 94 N.M. 675, 615 P.2d 992 (1980). Once again, the trial court did not find that Western acted in bad faith, or that Western's action were so extreme as to justify an award of punitive damages. We have reviewed the record and find no error in the trial court's judgment. Moreover, we have reviewed the New Mexico decisions cited by CJC and are not convinced that Western's conduct is comparable to those defendants who were assessed punitive damages. 12 We affirm the district court's decision to deny punitive damages to CJC. 46 The district court's decision is reversed in part and remanded for the calculation of interest on the award.