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Penzel Construction Co., Inc. v. Jackson R-2 School District

Court of Appeals of Missouri, Eastern District, Second Division

February 14, 2017


         Appeal from the Circuit Court of Cape Girardeau County Cause No. 09CG-CV00243 Honorable Benjamin F. Lewis


          Colleen Dolan, Judge

         Penzel Construction Company, Inc. ("Penzel"), on the behalf of Total Electric, Inc. (Total Electric) through a liquidating agreement, brought a breach of contract action against Jackson R-2 School District ("the District") based on a breach of implied warranty for furnishing "deficient and inadequate plans and specifications" to Penzel for a construction project. The District brought third-party claims against Henthorn, Sandmeyer and Company ("Henthorn") and Warner-Nease-Bost ("WNB"). The District, Henthorn, and WNB (hereinafter collectively "Respondents") filed motions for summary judgment in July of 2015, and the trial court granted the motions on November 30, 2015. We reverse and remand for further proceedings consistent with this opinion.

         I. Procedural and Factual Background

         A. Factual Background

         The District entered into a contract with WNB as architect to build an addition to the Jackson High School ("the Project") on October 10, 2005. Subsequently, WNB entered into a subcontract with Henthorn to produce electrical plans and specifications for the Project. During the bidding phase, the District furnished the plans and specifications ("the Plans") for the Project to Penzel, who in turn gave a copy of the Plans to Total Electric. Neither Penzel nor Total Electric noticed any errors in the Plans during the bidding process. Based on the Plans, Total Electric submitted a bid of $1, 040, 444 to Penzel to furnish and install electrical work for the Project. On September 15, 2006, the District entered into a contract ("the Contract") with Penzel to be a general contractor for the Project. In turn, Penzel entered into a subcontract ("the Subcontract") with Total Electric to provide electrical work on the Project based on the submitted bid. The District issued a notice to proceed to Penzel on September 18, 2006, requiring substantial completion of the Project within 550 days. Total Electric substantially completed its contracted work around May 27, 2009 and claims this sixteen month delay was the direct result of the Plans' defects and inadequacies.

         B. Procedural History

         The procedural history surrounding the Contract and the Subcontract is fairly complicated. It involves multiple parties and causes of action that are not relevant to this appeal.[1]The case on appeal involves only Count V: a breach of contract claim by Penzel against the District under the theory that the District made an implied warranty that the Plans for the Contract were adequate and complete, pursuant to the Spearin Doctrine.[2] Penzel claims the District breached this warranty by rendering defective plans and specifications that caused damages to Total Electric. Additionally, derivative of Penzel's breach of contract claim, the District, as a third-party plaintiff and cross-appellant, filed third-party claims against Henthorn and WNB as the third-party defendants and cross-respondents.[3] Our analysis focuses on Penzel's breach of contract claim against the District, although all five parties play relevant roles.

         In July of 2010, Penzel executed a liquidating agreement with Total Electric authorizing Penzel to prosecute Total Electric's claim for damages caused by its reliance on the Plans furnished by the District. Penzel filed its First Amended Petition on July 21, 2010 seeking recovery for Total Electric's damages, as well as damages for Penzel's markup for overhead and profit caused by the Plans' inadequacies and deficiencies.

         C. Penzel's Petition

         Penzel claims that, under the Spearin Doctrine, the District impliedly warranted that the Plans it furnished were adequate for completing the Project, and the District breached the Contract by providing inadequate and defective plans and specifications, which caused damages to Total Electric. Penzel alleges the Plans were defective in a number of material ways, including (1) the inadequate low voltage switching and wiring design affecting the gymnasium and some student areas; (2) incorrect kitchen drawings; (3) the failure of the plans and specifications to call for emergency ballasts; (4) incorporating a defective gymnasium lighting design; (5) the failure to depict all the water heaters and circulating pumps requiring wiring; (6) specifications calling for outdated products; (7) non-compliance with building codes; and (8) an incorrect depiction of some site electrical work as work to be performed by others.

         Penzel further alleges that Total Electric's damages were compounded by the District's and WNB's slow response time in dealing with problems on the Project. Penzel stated that Total Electric notified Penzel by e-mail of various problems encountered with the Plans, and Penzel then forwarded the e-mails to the District and WNB. Total Electric alleges it would frequently have to wait several weeks, and "sometimes months, " for a response. Moreover, oftentimes the responses did not resolve the initial issue. Penzel contends that the delayed, and often ineffective, responses caused inefficiencies for Total Electric, obligating it to pay workers for being at the work site without making progress on the Project. Accordingly, Total Electric was forced to pay for an increased total of labor hours to finish the Project, which significantly increased its cost. Total Electric also claims the deficiencies and delayed responses caused the company to incur higher hourly costs for manual labor due to trade labor wage escalation.

         Initially, Total Electric created daily logs for the Project to track the deficiencies in the Plans and their associated damages. However, Total Electric stopped maintaining these logs as problems persisted. Total Electric claimed it was unable to specifically track the amount of damages and extra hours attributable to each delay or distribution because the "sheer volume and variety of interfering and disruptive events" made it highly impractical. Total Electric further stated that accurately tracking and categorizing the defects and corresponding damages would have required the company to "devote multiple professionals to tracking costs, " which would further increase its costs.

         To prove damages for Total Electric's electrical labor loss of productivity, Penzel sought to use the "total cost method" or "modified total cost method." Penzel contends it can prove the remaining four categories of damages-consisting of (1) additional project management and supervision costs, (2) wage escalation, (3) unpaid change order work, and (4) its electrical consultant's estimated fee-without relying on either total cost method.

         Due to the complexity and volume of facts in this case, we will adduce additional facts as necessary under the relevant portions of the Discussion in Sec. III.

         II. Standard of Review

         Whether a court should grant summary judgment is purely an issue of law. Storey v. RGIS Inventory Specialists, LLC, 466 S.W.3d 650, 654 (Mo. App. E.D. 2015). Accordingly, appellate review of a circuit court's grant of summary judgment is de novo. Id. Summary judgment is only appropriate "when the moving party has demonstrated, on the basis of facts as to which there is no genuine dispute, a right to judgment as a matter of law." Binkley v. Am. Equity Mortgage, Inc., 447 S.W.3d 194, 196 (Mo. banc 2014); Rule 74.04(c).[4] We review the record in the light most favorable to the party against whom summary judgment was entered. Binkley, 447 S.W.3d at 196.

         Our Court has articulated the standard a defendant-movant must meet to make a prima facie case on a motion for summary judgment:

A defendant, as the movant can establish a prima facie case for summary judgment by showing any of the following: (1) facts that negate any one of the elements of a claimant's cause of action; (2) that the non-movant, after an adequate period of discovery, has not been able to produce, and will not be able to produce, evidence sufficient to allow the trier of fact to find the existence of any one of the claimant's elements; or (3) that there is no genuine dispute as to the existence of each of the facts necessary to support movant's properly pleaded affirmative defense."

Storey, 466 S.W.3d at 654 (emphasis added). After the movant-defendant has made a prima facie case showing that he is entitled to judgment as a matter of law under Rule 74.04(c), "the [plaintiff's] only recourse is to show-by affidavit, depositions, answers to interrogatories, or admissions on file-that one or more of the material facts shown by the movant to be above any genuine dispute is, in fact, genuinely disputed." ITT Commercial Fin. Corp. v. Mid-Am. Marine Supply Corp., 854 S.W.2d 371, 381 (Mo. banc 1993).

         For the purposes of summary judgment, a "genuine dispute" exists if the record contains competent evidence of two plausible, but contradictory, accounts of essential facts. Id. at 382. In the context of summary judgment, there is a genuine dispute of a material fact only if the factual disputes might affect the outcome of the case. Am. Standard Ins. Co. of Wis. v. Stinson, 404 S.W.3d 303, 311 (Mo. App. E.D. 2012).

         Before addressing Penzel's points on appeal, we will address Respondents' joint motion to strike Penzel's statement of facts and dismiss this appeal. Rule 84.04(c) controls the contents for the statement of facts in appellant and respondent briefs, stating:

The statement of facts shall be a fair and concise statement of the facts relevant to the questions presented for determination without argument. All statements of facts shall have specific page references to the relevant portion of the record on appeal, i.e., legal file, transcript, or exhibits. If the matter cited is contained in the appendix, a page reference to the appendix shall be included.

         The purpose of 84.04(c) is to "define the scope of the controversy and afford the appellate court an immediate, accurate, complete, and unbiased understanding of the facts of the case." In re Adoption of C.M., 414 S.W.3d 622, 628 (Mo. App. S.D. 2013). We find Penzel's brief complies with Rule 84.04(c) and does not offend its purpose. Accordingly, we deny Respondents' motion to strike Penzel's statement of facts, and we will review the points on appeal.

         III. Discussion

         Penzel relies on the Spearin Doctrine to establish a breach of contract by the District. Before addressing whether Penzel has produced sufficient evidence to survive a motion for summary judgment, we must address whether its claim based on an implied warranty under the Spearin Doctrine constitutes an actionable theory of recovery in Missouri. This type of action has not previously been expressly accepted or rejected in our State. After examining Spearin and Missouri precedent, we believe Spearin claims are acceptable vehicles for bringing causes of actions based on deficient plans and specifications in construction projects involving a governmental entity-owner.

         A. The Spearin Doctrine

         "Spearin stands for the proposition that when a governmental entity includes detailed specifications in a contract, it impliedly warrants that [1] if the contractor follows those specifications, the resultant product will not be defective or unsafe, and [2] if the resultant product proves defective or unsafe, the contractor will not be liable for the consequences." Caddell Const. Co. v. United States, 78 Fed.Cl. 406, 410 (2007) (quoting Hercules Inc. v. United States, 24 F.3d 188, 197 (Fed. Cir. 1994), aff'd, 516 U.S. 417 (1996)). However, Spearin is not merely a shield to protect the contractor from liability; it can also be used to compensate a wronged contractor. See Essex Electro Engineers, Inc. v. Danzig, 224 F.3d 1283, 1289 (quoting Chaney & James Constr. Co. v. United States, 421 F.2d 728, 732 (Ct. Cl. 1970)) ("[A]ll delay due to defective or erroneous Government specifications are per se unreasonable and hence compensable."). The government impliedly warrants that the design plans are "reasonably accurate"; however, the specifications need not be perfect. Caddell Const., 78 Fed.Cl. At 413 (internal quotations omitted). In determining whether the District's plans were defective, we look at the cumulative effect of these alleged errors. Id.

         Spearin aligns with principles established by Missouri precedent. Ideker, Inc. v. Mo. State Highway Comm'n may be the most analogous case decided by our State's courts. 654 S.W.2d 617 (Mo. App. W.D. 1983). Ideker was a "highway contractor, " that entered into a construction contract with the Missouri State Highway Commission ("the Commission"). Id. at 619. Relying upon the Commission's description of the work in its plans and specifications for the highway project, Ideker submitted a bid, which it won. Id. After starting the project, Ideker ran into problems that made the plans and specifications impossible to follow, and thus made the job impossible to complete without expending significantly more hours and money than it would have required if the plans and specifications were adequate. Id. at 619-620. Ideker brought a breach of contract action "in the nature of a breach of warranty" against the Commission. Id. at 620. Ideker argued the Commission warranted that the plans and specifications furnished to Ideker were an accurate representation of what Ideker would be required to perform. Id. The Western District affirmed the trial court's judgment in favor of Ideker, reasoning:

Syllogistically, where a governmental entity makes a positive representation of a material fact relied upon by a contractor in calculating its bid, which turns out to be false or incorrect after work is commenced and occasions additional expense, the contractor finds himself in the position of one who undertakes one contract but is confronted with performance of another. The governmental entity, pragmatically speaking, gets the benefit of another contract. If performance thereof by the contractor entails more expense than was calculated in submitting its bid, the governmental entity should bear the added cost rather than the contractor because the former is the beneficiary of necessary but unbargained for work resulting from its positive representation of a material fact which turned out to be false or incorrect.

Id. at 621. Although the current case is based on an "implied warranty" as opposed to a "positive representation, " the logic used in Ideker still holds: if a contractor makes a bid in reliance on a governmental entity's representations of what a project will entail, he should not be punished-and the entity should not receive a windfall-because the entity's renderings were defective. See id. In effect, the contractor would be punished for having to perform a contract he did not truly agree to enter. Id. On the other hand, the governmental entity would be rewarded for failing to accurately represent the performance it sought by inducing artificially low bids from inculpable contractors. Id. This result is at odds with the notion that we should try to place parties in the same position they would be in if the contract agreed upon was performed without a breach. Id. Thus, considering contract principles established by Missouri precedent, we believe Spearin claims should be permissible causes of action in our State.

         At its core, a Spearin claim is a breach of contract action. See Spearin, 248 U.S. at 137-38. In Missouri, "[a] breach of contract action includes the following essential elements: (1) the existence and terms of a contract; (2) that plaintiff performed or tendered performance pursuant to the contract; (3) breach of the contract by the defendant; and (4) damages suffered by the plaintiff." Keveney v. Mo. Military Acad., 304 S.W.3d 98, 104 (Mo. banc 2010). Thus, a trial court should only grant summary judgment in favor of a defendant in a breach of contract action if the plaintiff fails to adduce sufficient evidence for a reasonable fact-finder to conclude that all four of the essential elements have been satisfied. See Binkley, 447 S.W.3d at 196 ("A defending party may demonstrate entitlement to summary judgment by showing that the plaintiff cannot prove one or more elements of the claim."); Rule 74.04(c). There are two elements of concern in this appeal: (1) whether the defendant actually breached the contract, and (2) whether Penzel suffered damages that it can prove with reasonable certainty. First, we will address whether Penzel has produced sufficient evidence to establish a breach.

         B. Point I - Proof that the Plans were "defective" within the meaning of the Spearin Doctrine.

         To establish a claim for breach of contract under Spearin, the plans and specifications must be defective or "substantially deficient." Caddell Const. Co., 78 Fed.Cl. at 413. Plans and specifications are considered "defective" if they are "so faulty as to prevent or unreasonably delay completion of the contract performance." Id. (citing Wunderlich Contracting Co. v. United States, 351 F.2d 956, 964 (Ct. Cl. 1965)). Because the District, as the movant-defendant, made a prima facie showing that it is entitled to summary judgment as a matter of law, Penzel is required to produce evidence to create a genuine issue of material fact. Rule 74.04(c). Penzel relies on deposition testimony from several witnesses to support its contention that the Plans were defective. Nonetheless, the District contends Penzel failed to meet its burden for proving defectiveness for several reasons: (1) Penzel was required to produce "expert testimony" to demonstrate the Plans were defective, and none of the witnesses qualified as "experts" under § 490.065;[5] (2) even if Penzel's witnesses qualified as experts, their testimony was inadmissible because their opinions lacked an adequate factual basis; and (3) even if this Court rejects the District's first two arguments, the testimony proffered was insufficient to prove the Plans were defective within the meaning of Spearin. We disagree with all three of the District's assertions.

         1. Penzel's Witnesses

         The admissibility of expert testimony is governed by § 490.065. Am. Eagle Waste Indus., LLC v. St. Louis City, Missouri, 463 S.W.3d 11, 25 (Mo. App. E.D. 2015). "A trial court has considerable discretion in the admission of evidence, and its decision will not be reversed unless there is a clear abuse of discretion." Id. at 23 (quoting Lozano v. BNSF Ry. Co., 421 S.W.3d 448, 451 n.2 (Mo. banc 2014). In the present case, WNB and Henthorn filed motions to exclude the expert testimony of Joseph Manzi and Myron Bernard, which the District later joined in a motion in limine. We give strong credence and great deference to the trial court's conclusion on the admissibility of expert testimony. Id. In this case, however, the trial court did not rule on any motion to exclude Penzel's expert testimony in deciding summary judgment. Accordingly, there is no ruling to which we may defer.

         2. Is Expert Testimony Required?

         The District contends that Penzel is required to produce "expert testimony" to establish the Plans were "defective." This argument is premised on the District's belief that implied warranty claims in Missouri "are considered fault-based claims." The District reasons that "within the context of design documents, 'fault' is established by proving that a design professional negligently prepared the design documents, " which requires expert testimony. We disagree. The implied warranty in a Spearin claim is that the plans are free from significant defects; it is not simply a guarantee that a particular level of care and competency was used to create the plans. "When the government provides a contractor with defective specifications, the government is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications, and the contractor is entitled to recover all of the costs proximately flowing from the breach." Essex Electro Engineers, 224 F.3d at 1289. In Ideker, the Missouri case we found most similar to Spearin, the Western District listed six necessary elements "to constitute a cause of action…in the nature of a breach of warranty by a contractor against a governmental entity, " none of which involved fault or negligence by the government-owner. 654 S.W.2d at 621. Accordingly, Penzel need not show the District fell below a reasonable standard of care to prevail on its Spearin claim, and an expert witness is not required to attest to standard of care.

         Generally in Missouri, expert testimony is only required "when a fact at issue is so technical or complex that no fact-finder could resolve the issue" without it. Stone v. Mo. Dep't of Health & Senior Servs., 350 S.W.3d 14, 21 (Mo. banc 2011). A trial court's determination of whether the facts in a case are so complicated that they require expert testimony lies within its discretion. Hill v. City of St. Louis, 371 S.W.3d 66, 78 (Mo. App. E.D. 2012). In the present case, however, the trial court did not make a ruling on any of Respondents' motions to exclude the testimony of Joseph Manzi or Myron Bernard.

         Although electrical engineering is highly technical and complicated in general, most of the problems alleged by Penzel, and testified about by its witnesses, were simple enough for a layperson to understand. For example, testimony that the Plans omitted critical components, called for outdated or non-existent products, and failed to comply with building codes are issues a layperson without any technical training could understand. Accordingly, Penzel was not required to produce expert testimony to prove the Plans were substantially deficient.

         3. Do either Joseph Manzi or Myron Bernard qualify as experts, and is their "expert testimony" permissible?

         Even if expert testimony is not required, it is admissible "when the topic at issue is one with which lay witnesses and fact-finders are unfamiliar." Stone, 350 S.W.3d at 21. We allow expert testimony to address issues in areas in which the fact-finder lacks experience or knowledge. Id. Essentially, the admissibility of expert testimony hinges on whether it ...

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