Goes v. Vogler , 304 Neb. 848 ( 2020 )

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- 848 -
Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
Tanner Goes, doing business as Goes Construction,
appellee, v. Eric Vogler and Destini Vogler,
husband and wife, appellants.
Franklin Drywall, Inc., a Nebraska corporation,
appellee, v. Eric Vogler and Destini Vogler,
husband and wife, appellants, and
FBM Lincoln et al., appellees.
___ N.W.2d ___
Filed January 17, 2020. Nos. S-18-1201, S-18-1203.
1. Mechanics’ Liens: Foreclosure: Equity. An action to foreclose a con-
struction lien is one grounded in equity.
2. Equity: Appeal and Error. In an appeal of an equity action, an appel-
late court tries factual questions de novo on the record and reaches
a conclusion independent of the findings of the trial court, provided,
where credible evidence is in conflict on a material issue of fact, the
appellate court considers and may give weight to the fact that the trial
judge heard and observed the witnesses and accepted one version of the
facts rather than another.
3. Breach of Contract: Damages. A suit for damages arising from breach
of a contract presents an action at law.
4. Contracts. A cost-plus contract as generally understood is one where
the total cost to the contractor represents the whole payment to be made
to him or her, plus a stated percentage of profit.
5. Contracts: Mechanics’ Liens. Under cost-plus contracts, the amount
owing the builder should be computed on the basis of the amount
actually spent for labor, materials, and supplies which go into and
become a part of the finished structure, including the amounts paid to
subcontractors.
6. ____: ____. In any cost-plus contract, there is an implicit understand-
ing between the parties that the cost must be reasonable and proper.
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
Contractors do not have a fiduciary duty under a cost-plus contract as a
matter of law, other than those obligations already required by law and
the contract.
Appeal from the District Court for Cass County: Michael
A. Smith, Judge. Affirmed.
Damien J. Wright and Natalie M. Hein, of Welch Law Firm,
P.C., for appellants.
James B. Luers, of Cada, Cada, Hoffman & Jewson, for
appellee Tanner Goes.
Troy J. Bird, of Hoppe Law Firm, L.L.C., for appellee
Franklin Drywall, Inc.
Timothy W. Nelsen, of Fankhouser, Nelsen, Werts, Ziskey
& Merwin, P.C., L.L.O., for appellee Shelton Brothers
Construction, LLC.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
Miller-Lerman, J.
NATURE OF CASE
The appellants, Eric Vogler and Destini Vogler, contracted
with Shelton Brothers Construction, LLC (Shelton), for the
construction of a residential home. Shelton and two of its sub-
contractors, Tanner Goes, doing business as Goes Construction
(Goes), and Franklin Drywall, Inc. (Franklin), subsequently
filed construction liens and brought contract suits claiming
unpaid balances for construction services rendered. Following
trial on the consolidated cases, the district court determined
that the construction contract between the Voglers and Shelton
was a cost-plus agreement, that defects in workmanship were
punch list items and not a breach by Shelton, and that the
Voglers committed the first material breach of contract and
owed damages to the contractor and subcontractors. The
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
Voglers appeal, and we ordered the appeals, S-18-1201 and
S-18-1203, consolidated for appeal. On appeal, the Voglers
claim, inter alia, that the contract was a fixed-price con-
tract breached by Shelton and that, alternatively, even under
a cost-plus contract, Shelton breached a fiduciary duty to
provide a full accounting for its bills to the Voglers when it
requested draw payments. We affirm with respect to all parties
and claims.
FACTS
After the Voglers’ home was destroyed by fire, they hired
Shelton to construct a new home in Nehawka, Nebraska, on
the existing foundation. They hired Shelton as their general
contractor. After months of negotiating and discussion, the par-
ties entered into a contract in October 2015, memorialized by
exhibits 2, 37, and 47 in the record (the contract). Although
paragraph 4 of exhibit 47 states that it is a “cost plus contract”
with specific fees for overhead, warranty, and profit to Shelton,
elsewhere the contract states that “[t]he agreed upon price is
$282,000.00.” The contract called for an initial payment of
$28,000, with progress payments made as monthly draws.
Under the contract, Shelton would be able to request a monthly
draw, subject to approval by the Voglers, “as needed to pay for
materials and services.” The payments were to be made within
10 days of the request.
Shelton and its subcontractors began work in October 2015,
and as work progressed, various changes were made to the
arrangement contemplated by the contract and the scope of
work. One arrangement change was the fact that the Voglers
and Shelton mutually waived the requirement of written change
orders. One scope of work change was that framing for walls
was adjusted and the foundation extended by 2 feet—resulting
in modifications to the roof trusses and other features. Some of
the changes caused spinoff delays and difficulties scheduling
subcontractors. The Voglers became concerned with the lack of
progress and communication by Shelton.
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
The Voglers made the initial downpayment and the first two
requested draws. Shelton requested a third draw on February
18, 2016, in the amount of $48,972.54. Alleging shoddy
workmanship, a fear that Shelton would not finish the proj-
ect, and a lack of accounting, the Voglers made only a par-
tial payment on one of the draws requested by Shelton. The
district court found that only $19,875.40 was paid on the
third draw and that the payments were “as late as March
13, 2016.”
The Voglers contend that when making its draw requests,
Shelton attached some, but not all, of the invoices from sub-
contractors and suppliers, and the Voglers expressed concern
as to how their money was being spent. In February 2016,
Eric Vogler emailed Shelton requesting an accounting for the
initial $28,000 downpayment. Shelton did not provide itemiza-
tions or documentation of expenses to the Voglers’ satisfaction.
The Voglers’ payments did not equal the draw requests, and
Shelton terminated the contract. The Voglers hired another
contractor to finish the home, and Shelton, Franklin, and Goes
all filed construction liens with varying technical success. The
three moved to foreclose upon the liens and asserted contract
claims. Two consolidated cases encompassing all parties and
claims proceeded to trial.
In orders filed on November 26, 2018, the district court
found that the Voglers withheld payment because of their
concerns about the quality of the work, that the project would
not be completed for the price stated in the contract, and
that the work would not be completed on time. The district
court stated that “[t]he justification for the Voglers’ failure to
make timely payments hinges on their assertions that the par-
ties had a fixed-price contract and that the contract required
written change orders.” The district court concluded that the
contract was not ambiguous and that it was for a cost-plus
contract price, not a fixed cost contract price. Although the
parties did not sign written change orders regarding changes
to the project, the district court found that the parties’ mutual
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
conduct amounted to a waiver of the provisions in the contract
requiring written change orders. The court determined that
any deficiencies in the quality of the work were punch list
items, which would have been cured in the ordinary course
of completion of the work, and therefore were not a breach
of contract by Shelton. Accordingly, the district court found
that the Voglers’ suspension of payment constituted a breach
of contract.
Although FBM Lincoln was served, it did not enter an
appearance or assert an interest in the real estate, and the dis-
trict court found any interest of FBM Lincoln in the real estate
would not be recognized.
In case No. S-18-1201, the district court entered judgment
against the Voglers in the amount of $64,603.42, wherein Goes
was awarded $26,678 and Shelton received the remainder. In
the consolidated case, case No. S-18-1203, the trial court found
that Franklin’s lien was tardy and unenforceable pursuant to
Neb. Rev. Stat. § 52-140 (Reissue 2010); however, the district
court repeated its award against the Voglers and in favor of
Shelton, but allocated $15,000 of Shelton’s award to Franklin
based on Franklin’s successful breach of contract claim against
Shelton. The Voglers appeal.
ASSIGNMENTS OF ERROR
On appeal, the Voglers assert, restated, that the district court
erred when it (1) characterized the contract as a cost-plus con-
tract, (2) found that the Voglers committed the first material
breach of the contract with Shelton, and (3) awarded damages
to Shelton, Franklin, and Goes.
STANDARDS OF REVIEW
[1,2] An action to foreclose a construction lien is one
grounded in equity. Robison v. Madsen, 246 Neb. 22, 516
N.W.2d 594 (1994). In an appeal of an equity action, an appel-
late court tries factual questions de novo on the record and
reaches a conclusion independent of the findings of the trial
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
court, provided, where credible evidence is in conflict on a
material issue of fact, the appellate court considers and may
give weight to the fact that the trial judge heard and observed
the witnesses and accepted one version of the facts rather than
another. Id.
[3] A suit for damages arising from breach of a contract
presents an action at law. Bloedorn Lumber Co. v. Nielson, 300
Neb. 722, 915 N.W.2d 786 (2018).
ANALYSIS
The district court and parties have treated this case essen-
tially as one arising from breach of contract. And although
the record shows construction liens were filed, we believe the
appropriate framework is predominantly a contract action and
review the matter accordingly. See Tilt-Up Concrete v. State
City/Federal, 261 Neb. 64, 621 N.W.2d 502 (2001). With
respect to breach, the central issue is whether the Voglers
breached the contract first by failing to make draw payments
to Shelton or whether Shelton breached the contract first
under various theories advanced by the Voglers. Based on the
language of the contract and the evidence at trial, we affirm
the orders of the district court which found that the Voglers
breached the contract, dismissed the Voglers’ cross-claims,
and entered money judgments in favor of Shelton, Franklin,
and Goes.
On appeal, the Voglers contend that the district court erred
when it concluded that the agreement was a cost-plus con-
tract rather than a fixed-price contract. They argue, in the
alternative, that even assuming the agreement was a cost-plus
contract, Shelton breached its duty to provide information
to the Voglers regarding the project cost and budget. They
also argue that they are a “[p]rotected party” under Neb.
Rev. Stat. § 52-129 (Reissue 2010) and that Shelton, and by
extension Franklin, can only recover the difference between
the prime contract price and the amount the Voglers had
already paid.
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
The Parties Executed a
Cost-Plus Contract.
The Voglers’ first claim on appeal is that the district court
erred when it characterized the contract as a cost-plus con-
tract. Referring to language in paragraph 4 of the contract,
which stated that “[t]he agreed upon price is $282,000.00,”
the Volgers maintain that the parties intended that the price
of the house was fixed and limited to $282,000. We conclude
the district court did not err when it concluded that the agree-
ment was a cost-plus contract, and we reject this assignment
of error.
The contract language provided in significant part as follows:
4. The agreed upon price is $282,000.00 to be paid
in monthly draws as needed to pay for materials and
services provided during the building process. The first
monthly draw shall be $28,000.00 and is due and pay-
able upon signing of this contract. Additional draws to
be applied on an as needed basis per month for services
rendered and the balance of the contract will be 10%
of the contract price at completion. All payments to be
rendered from owner’s bank to Nebraska Title Company
which will in turn distribute money to vendors/­contractors
as allocated in draw submitted. This contract is to be
executed as a cost plus contract where all costs for the
project will be presented to the homeowners and the
builder’s fees will be completed at 2% for warranty, 5%
for overhead and 3% for profit or 10% of the total cost of
all work performed.
(Emphasis supplied.)
[4,5] We have stated that a “cost-plus contract as gener-
ally understood is one where the total cost to the contrac-
tor represents the whole payment to be made to him, plus
a stated percentage of profit.” Grothe v. Erickson, 157 Neb.
248, 251, 59 N.W.2d 368, 370 (1953). We have explained
that under cost-plus contracts, the amount owing the builder
should be computed on the basis of the amount actually spent
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
for labor, materials, and supplies which go into and become
a part of the finished structure, including the amounts paid to
subcontractors. Robison v. Madsen, 246 Neb. 22, 516 N.W.2d
594 (1994).
As noted by the district court, the language of paragraph 4
of the contract, which we have highlighted above, explicitly
states that the contract is a “cost plus contract,” and it describes
the allocation of additional fees for overhead, warranty, and
profit. Such language is consistent with the general understand-
ing of a cost-plus contract and inconsistent with a fixed-price
contract. Taking the contract language as a whole, the district
court did not err when it concluded that the agreement between
the Voglers and Shelton was a cost-plus contract. We reject this
assignment of error.
No Special Fiduciary Duty of Builder
Under Cost-Plus Contract in the
Absence of Agreement.
The Voglers claim that even assuming the parties were sub-
ject to a cost-plus contract, a contractor in a cost-plus contract
has additional fiduciary duties to a homeowner as a matter of
law, and that the district court erred by not explicitly discussing
whether Shelton breached these duties and, consequently, the
contract. As we noted above, we have stated that the “amount
owing the builder should be computed on the basis of the
amount actually spent for labor, materials, and supplies which
go into and become a part of the finished structure, including
the amounts paid to subcontractors.” Robison v. Madsen, 246
Neb. at 27-28, 516 N.W.2d at 598. The Voglers contend that
given the law just quoted, it necessarily follows that a contrac-
tor must provide prompt, detailed accountings of actual costs
incurred before taking progress payments and, furthermore,
must inform the homeowner of potential cost overruns. The
Voglers overstate the obligations of a contractor in general
and, given the contract, in this case in particular. We reject this
assignment of error.
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
Although there is case law to suggest that occasionally a
cost-plus arrangement may place additional burdens upon a
contractor, this is typically recognized where the contract lan-
guage provides that “the contractor accepts a ‘relationship of
trust and confidence established’ between it and the owner.” 2
Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor
on Construction Law § 6:81 at 641 (2002). For example, in a
Maryland appellate case relied on by the Voglers, the contrac-
tor accepted a “‘relationship of trust and confidence’” with the
homeowners and explicitly agreed to further their interests by
performing “‘the Work . . . in the most . . . economical man-
ner consistent with’” their interests and to “‘keep . . . full and
detail[ed] accounts.’” Jones v. J.H. Hiser Constr. Co., 60 Md.
App. 671, 676, 484 A.2d 302, 304 (1984). Given these provi-
sions, the court held that there was a relationship of trust and
confidence between the parties, i.e., a fiduciary relationship
grounded in the explicit language of the contract. Jones v. J.H.
Hiser Constr. Co., supra.
[6] The contract between the Voglers and Shelton does not
explicitly contain language creating a fiduciary relationship.
As a general matter, it has been observed and we agree that
“‘[i]n any cost-plus contract there is an implicit understand-
ing between the parties that the cost must be reasonable and
proper.’” Forrest Const. Co., LLC v. Laughlin, 337 S.W.3d
211, 223 (Tenn. App. 2009) (quoting Kerner v. Gilt, 296 So.
2d 428 (La. App. 1974)). However, other than those already
required by law and by the parties’ contracts, we decline to
impose further fiduciary duties on contractors as a matter
of law.
Here, the cost-plus contract required that “all costs for the
project will be presented to the homeowners and the builder’s
fees will be completed at . . . 10% of the total cost of all work
performed.” Under the contract, Shelton was required to pre­
sent its actual costs to the Voglers to determine the builder’s
fee at completion. According to the contract, the progress
draws were “to be paid in monthly draws as needed to pay
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
for materials and services.” Contrary to the Voglers’ argument,
we do not read this provision as requiring only retrospective
payments nor do we read this provision as requiring extensive
accounting. Compare Forrest Const. Co., LLC v. Laughlin, 337
S.W.3d at 222 (stating that contract language provided that
each draw would be submitted with “‘full back-up support
for all amounts requested’” and contractor “‘shall have full
responsibility and obligation to keep full and accurate records
of all costs and expenses to satisfy tax laws and [o]wner’”
(emphasis omitted)).
Although it appears the Voglers were deeply dissatisfied
with their communication with Shelton and did not want to
pay prospectively for work not yet performed, the record
does not show that Shelton breached any term of the con-
tract. A managing partner in Shelton testified that after the
Voglers questioned the initial downpayment, the parties “talked
through that, and then additional money was paid out” to “get
everybody started.” Although it would have been helpful to
all parties and to the court if Shelton had provided periodic
detailed invoices, it appears from the record that the parties
had periodic conversations about the costs which, if believed,
were sufficient for the district court to conclude that Shelton’s
obligations under the contract had been met when it requested
draw payments.
Nor does the record show that Shelton breached a duty to
keep costs reasonable and proper. It is undisputed that the
Voglers, consistent with a cost-plus contract, elected for several
changes or upgrades from the initial build plan. Among other
aesthetic changes, a wall was moved 2 feet back on the back
of the house, and windows, doors, a fireplace, and angled walls
were added, increasing the project costs. Although the Voglers
raised concerns at trial and on appeal that the project costs
would have been unreasonable and improper, the evidence, if
believed, was generally consistent with the conclusion that cost
overruns were explained by the items added by the Voglers
and the necessity of the situation “as is” and that the overruns
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
were not a failure by Shelton to keep costs reasonable. At trial,
a managing partner in Shelton testified that if Shelton had
been allowed to finish and the Voglers had followed the allow-
ances, Shelton could have brought the contract in at $282,000
and on time. The district court, having heard the evidence
and reviewed the documentation in the record, found that the
Voglers breached their contract with Shelton and awarded
damages to Shelton and its subcontractors. Where credible
evidence is in conflict, we consider and may give weight to the
fact that the trial judge heard and observed the witnesses and
accepted one version of the facts rather than another. Robison
v. Madsen, 246 Neb. 22, 516 N.W.2d 594 (1994). We find no
merit to this assignment of error.
Goes’ Construction Lien.
The court ordered that Goes was to receive $26,678. The
Voglers claim that the court erred in making an award to
Goes. The Voglers contend that Goes is not entitled to recover
the amount sought in its lien because the Voglers are a “[p]ro­­-
tected party” contracting owner under § 52-129. Pursuant to
Neb. Rev. Stat. § 52-136 (Reissue 2010), lien liability is
limited to the difference between the “prime contract price”
less payments properly made thereon. However, under Neb.
Rev. Stat. § 52-127(2) (Reissue 2010), the “[c]ontract price”
is defined, in pertinent part, as “the amount agreed upon by
the contracting parties for performing services and furnishing
materials covered by the contract, increased or diminished by
the price of change orders or extras.” The Voglers’ argument
and claim that it has already paid the prime contract price is
not supported by the record, and we reject this assignment
of error.
Eric Vogler testified that he had paid $203,485 on the con-
tract with Shelton, but the contract provided for $282,000 even
before the cost of changes and extras were added. The Voglers’
payments to other entities as part of their project did not
reduce their contract liability to Shelton under the contract. The
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Nebraska Supreme Court Advance Sheets
304 Nebraska Reports
GOES v. VOGLER
Cite as 304 Neb. 848
Voglers remain obligated to Goes and the other parties who
perfected liens for the unpaid part of their contract, as ordered
by the district court. See § 52-136.
CONCLUSION
We determine that the district court did not err when it found
that the contract was a cost-plus contract and that the Voglers
breached their contract with Shelton when they failed to pay
draws required under the contract. We conclude that Shelton
met its obligations under the contract to receive draw payments
for materials and to pay subcontractors and that Shelton did
not fail to ensure costs were reasonable and proper under the
circumstances. Any remaining assignments of error not sum-
marized above have been considered and are without merit.
The orders and judgments of the district court are affirmed
with respect to all parties and claims.
Affirmed.