E Solutions For Buildings, LLC v. Knestrick Contractor, Inc. ( 2019 )

10/30/2019
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
August 13, 2019 Session
E SOLUTIONS FOR BUILDINGS, LLC v. KNESTRICK CONTRACTOR,
INC., ET AL.
Appeal from the Chancery Court for Davidson County
No. 15-62-IV Russell T. Perkins, Chancellor
___________________________________
No. M2018-02028-COA-R3-CV
___________________________________
This appeal involves payment disputes arising out of a public construction project.
Among other things, the case involves claims made by an equipment supplier against a
subcontractor, the project’s general contractor, and the general contractor’s bonding
company, and claims made by the same subcontractor against the general contractor.
Following a trial, the trial court granted the supplier a judgment against the subcontractor
and granted the subcontractor a judgment against the general contractor. The supplier’s
claim against the general contractor and its bonding company was denied. The propriety
of these rulings and numerous other issues are now before this Court. Having reviewed
the record transmitted to us on appeal, we affirm in part, affirm in part as modified,
reverse in part, and remand the case for such further proceedings as are necessary and
consistent with this Opinion.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
in Part; Modified in Part; Reversed in Part and Remanded
ARNOLD B. GOLDIN, J., delivered the opinion of the Court, in which J. STEVEN
STAFFORD, P.J., W.S., and CARMA DENNIS MCGEE, J., joined.
Paul T. Housch, Nashville, Tennessee, for the appellant, Air Comfort Heating and
Cooling, LLC.
Timothy H. Nichols, Nashville, Tennessee, for the appellee, E Solutions for Buildings,
LLC.
Adam G. LaFevor, Nashville, Tennessee, for the appellees, Knestrick Contractor, Inc.,
and Berkley Regional Insurance Company.
OPINION
BACKGROUND AND PROCEDURAL HISTORY
This case stems from the construction of the Centennial Sportsplex Indoor Fitness
Expansion Building by the Metropolitan Government of Nashville and Davidson County
(“Metro”). In April 2013, Metro entered into a contract with Knestrick Contractor Inc.
(“Knestrick”), pursuant to which Knestrick agreed to construct the Centennial Sportsplex
expansion. Under the contract, Knestrick was obligated to accomplish substantial
completion of the project by December 2, 2013,1 and if it failed to do so, Metro was
entitled to assess “the sum of $1,000.00 for each calendar day of delay until the Project is
Substantially Complete.” Knestrick, as principal, and Berkley Regional Insurance
Company (“Berkley”), as surety, provided a payment bond in connection with the
project.
Following its agreement to serve as a general contractor for the Centennial
Sportsplex expansion, Knestrick entered into a subcontract with Air Comfort Heating &
Cooling, LLC (“Air Comfort”) with respect to the HVAC work required for the project.
This subcontract, which was entered into in July 2013, specifically provided that the
work must be performed on or before November 27, 2013. Moreover, similar to the
prime contract between Metro and Knestrick, the subcontract involving Air Comfort
provided that $1,000.00 in liquidated damages could be assessed “for each day that the
work remains uncompleted beyond the specified date period.”
In furtherance of its required work under the subcontract, Air Comfort sought to
purchase certain HVAC equipment. To this end, Air Comfort engaged in negotiations
with E Solutions for Buildings, LLC (“E Solutions”). E Solutions sent Air Comfort a
proposal regarding the needed HVAC equipment on November 11, 2013, and on
November 13, 2013, Air Comfort submitted a purchase order for the equipment. The
purchase order recited December 13, 2013 as the delivery date, but in the terms and
conditions attached to the purchase order, the following was provided: “Shipment dates
are estimates only. No valid contract may be made to ship within or at a specified time
unless in writing, signed by an authorized signatory of Seller.” There was no liquidated
damages provision provided for in the contract between Air Comfort and E Solutions,
and the attached terms and conditions further stated that the seller, E Solutions, would
“IN NO EVENT . . . BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, OR
PUNITIVE DAMAGES.” Moreover, the terms and conditions provided that E
Solutions’ duty to perform was subject to, among other things, the “inability to procure
1
Per an email sent in May 2013, a representative with Metro communicated that a revised construction
schedule, establishing a substantial completion date of December 6, 2013, was appropriate based on the
time it took Metro to process Knestrick’s final contract.
-2-
materials from the usual sources of supply” and other causes beyond its “reasonable
control.”
When the original deadline for completion of the project proved untenable, Metro
and Knestrick entered into an amendment whereby the substantial completion date was
extended to January 26, 2014. Although no corresponding amendment was formally
made regarding the completion date of Air Comfort’s work under its subcontract with
Knestrick, a Knestrick officer testified that an extension was also passed on to
subcontractors. Nonetheless, the ultimate delay accompanying the project’s completion
has engendered substantial controversy among the parties concerning their respective
claims for payment. The project was eventually certified as substantially complete on
May 8, 2014.
Litigation subsequently ensued as a result of the construction project. The
initiating complaint in this matter, which was filed by E Solutions in the Davidson
County Chancery Court (“the trial court”) on January 15, 2015, alleged that E Solutions
had not been paid for the materials, equipment, and services it provided on the project. In
addition to asserting a bond claim against Knestrick and Berkley, E Solutions sued Air
Comfort for breach of contract. Further, E Solutions pled an unjust enrichment/quantum
meruit claim against Air Comfort and Knestrick.
On February 20, 2015, Air Comfort filed an answer to E Solutions’ complaint and
also asserted a counterclaim and cross-claim. In its defense to E Solutions’ action, Air
Comfort asserted, among other things, that E Solutions had materially breached the
purchase order with Air Comfort by delaying delivery of the specified HVAC equipment.
Air Comfort claimed that it had been damaged by E Solutions’ alleged failure to timely
deliver the ordered equipment, and it asserted several theories of liability in its cross-
claim against Knestrick. Air Comfort alleged that Knestrick was liable for breach of
contract by failing to pay it sums owed under the subcontract, and according to Air
Comfort, Knestrick should also be held liable for conversion and in violation of the
Prompt Pay Act. A bond claim, a claim for unjust enrichment/quantum meruit, and a
claim for contribution were also asserted against Knestrick.2
On February 24, 2015, Knestrick and Berkley filed an answer to E Solutions’
complaint, wherein they prayed that the claims against them be dismissed, and within the
same filing, Knestrick separately asserted a cross-claim against Air Comfort. In the
cross-claim, Knestrick averred it was entitled to recover $72,000.00 in liquidated
damages and alleged that it was entitled to indemnification regarding the action filed
against it by E Solutions. Answers to the cross-claims and counterclaim were thereafter
filed, and a bench trial was held in the fall of 2016.
2
The bond claim was asserted against Knestrick and Berkley.
-3-
On March 17, 2017, the trial court entered its “Memorandum and Final
Judgment,” wherein it determined that Air Comfort was entitled to a judgment for breach
of contract against Knestrick in the amount of $15,000.00. According to the trial court,
this was the full extent of Knestrick’s liability, and the court declined to award Air
Comfort prejudgment interest. Further, the trial court dismissed Air Comfort’s claims
against E Solutions and E Solutions’ claims against Knestrick and Berkley. As for E
Solutions’ requested relief against Air Comfort, the court awarded it a judgment in the
amount of $42,847.98, plus prejudgment interest. Notably, the court’s order stated that it
was reserving any determination about attorney’s fees, expenses, and discretionary costs
until appeals in the case concluded.
Several post-trial motions were thereafter filed, and on July 7, 2017, the trial court
entered an order addressing them. The court noted that, notwithstanding its previous
reservation of certain issues, it had decided to entertain previously stayed issues “[a]t the
urging of certain of the parties.” In addition to addressing the parties’ requests for
discretionary costs, the trial court denied Air Comfort’s request for attorney’s fees.
Further, regarding attorney’s fees sought by E Solutions, Knestrick, and Berkley, the
court held that:
E Solutions is a prevailing party and is entitled to an award of reasonable
attorneys’ fees under the contract entered with Air Comfort. The Court,
however, hereby DENIES E Solutions application for attorneys’ fees,
without prejudice, because it is not accompanied by a sworn detailed
itemization of the services rendered and the time expended for those
particular services as required under Local Rule § 5.05 and Tenn. Sup. Ct.
R. 8, RPC 1.5(a)(1). This denial is without prejudice. E Solutions may
renew its request for attorneys’ fees in this Court after all appeals are
exhausted.
....
Knestrick and Berkley are prevailing parties. Knestrick is generally entitled
to attorneys’ fees under the indemnification provisions[] of the parties’
subcontract due to Air Comfort’s decision to withhold payment to E
Solutions when Air Comfort had no contractual right to do so. The Court,
however, hereby DENIES, without prejudice, Knestrick and Berkley’s
application for attorneys’ fees because it lacks the specific itemization
required by Local Rule Sec. 5.05 and Tenn. Sup. Ct. R. 8, RPC 1.5,
pending the outcome of the appeals.
Although the order was certified as final pursuant to Rule 54.02 of the Tennessee
Rules of Civil Procedure and an appeal was thereafter pursued in this Court, a different
-4-
panel of this Court dismissed the previous appeal for lack of subject matter jurisdiction,
stating in relevant part as follows:
Here, the trial court resolved the parties’ breach of contract claims
and found that E Solutions, Knestrick, and Berkley are contractually
entitled to recover their attorney’s fees, but the court granted in part and
denied in part the request for contractual attorney’s fees, without prejudice,
directing the parties to re-submit their requests after this appeal. This order
was improvidently certified as final. Rule 54.02 “does not allow a trial
court to certify an order[ ] that disposes of only some, but not all, elements
of damages, as final and appealable.” Cooper v. Powers, No. E2011–
01065–COA–R9–CV, 2011 WL 5925062, at *6 (Tenn. Ct. App. Nov. 29,
2011). “Notably absent from Rule 54.02 is any mention of allowing the
certification as final of an order which disposes of certain elements of a
claim for damages but leaves the claim pending as to other elements.” Id.
See, e.g., Johnson v. Tanner–Peck, L.L.C., No. W2009–02454–COA–R3–
CV, 2011 WL 1330777, at *6 n.8 (Tenn. Ct. App. Apr. 8, 2011) (explaining
that an order was not appropriate for certification as final under Rule 54.02
because it did not dispose of a request for treble damages, punitive
damages, attorney’s fees and the like arising out of the same claim); Cates,
1991 WL 168620, at *4 (“Bifurcation of damages is fatal to a 54.02
certification.... While it is proper for the trial court to bifurcate the
eviden[t]iary hearings on these damages, it cannot bifurcate the appeal of
it.”). An award as to only one facet of the total damages is not properly
certifiable. Cates, 1991 WL 168620, at *4.
We reached the same conclusion on facts similar to those before us
in Toyos v. Hammock, No. W2011–01649–COA–R3–JV, 2013 WL
177417, at *16–17 (Tenn. Ct. App. Jan. 17, 2013). The trial court had
certified its judgment as final pursuant to Rule 54.02 in “an attempt to
finalize the judgment” even though the issue of attorney’s fees had not been
resolved. This Court entered a per curiam opinion finding that we lacked
jurisdiction in the matter because the trial court’s order failed to adjudicate
the request for attorney fees. We likewise find that this Court lacks
jurisdiction over the appeal in this matter.
E Sols. for Bldgs., LLC v. Knestrick Contractor, Inc., No. M2017-00732-COA-R3-CV,
2018 WL 1831116, at *4 (Tenn. Ct. App. Apr. 17, 2018) (footnote omitted), perm. app.
denied (Tenn. Aug. 9, 2018).
Following the remand of the case, the trial court addressed the outstanding issues.
In an order entered on October 16, 2018, the trial court ruled on the amount of attorney’s
fees, discretionary costs, and prejudgment interest owed to E Solutions and awarded
-5-
Knestrick and Berkley attorneys’ fees and discretionary costs against Air Comfort. A
timely notice of appeal was filed by Air Comfort on November 8, 2018, leading to the
present appeal.
ISSUES PRESENTED
This appeal concerns a variety of issues by both Air Comfort and E Solutions. In
Air Comfort’s brief, the issues presented for our review are as follows:
1. Whether the trial court erred in dismissing Air Comfort’s claim of conversion of
construction proceeds and Prompt Pay Act claim against Knestrick.
2. Whether the trial court erred in finding that Knestrick was entitled to assess
liquidated damages against Air Comfort and only awarding Air Comfort a
judgment for $15,000.00 against Knestrick for breach of contract.
3. Whether the trial court erred in awarding E Solutions a judgment for $42,847.98
against Air Comfort.
4. Whether the trial court erred in denying Air Comfort attorney fees under the
Prompt Pay Act against Knestrick for withholding a contract payment and
retainage payment.
5. Whether the trial court erred in denying Air Comfort discretionary costs against
Knestrick.
6. Whether the trial court erred in denying Air Comfort prejudgment interest against
Knestrick.
7. Whether the trial court erred in awarding E Solutions Attorney Fees, and
Prejudgment interest against Air Comfort.
8. Whether the trial court erred in awarding Knestrick attorney fees and discretionary
costs against Air Comfort.
For its part, E Solutions raises the following issues in its appellate brief:
1. Whether the trial court erred in awarding E Solutions a judgment for [only]
$42,847.98 against Air Comfort.
2. Whether the trial court erred in awarding E Solutions attorney’s fees and
prejudgment interest against Air Comfort.
3. Whether E Solutions is entitled to an award of additional attorney’s fees on appeal.
4. Whether the trial court erred in not awarding E Solutions a judgment against
Knestrick, as principal, and Berkley, as surety, on the payment bond claim.
Knestrick and Berkley have no “Statement of the Issues” section in their brief.
-6-
STANDARD OF REVIEW
This appeal arises from a bench trial. Pursuant to Rule 13(d) of the Tennessee
Rules of Appellate Procedure, “review of findings of fact by the trial court in civil actions
shall be de novo upon the record of the trial court, accompanied by a presumption of the
correctness of the finding, unless the preponderance of the evidence is otherwise.” Tenn.
R. App. P. 13(d). We review a trial court’s conclusions on questions of law de novo, but
no presumption of correctness attaches to the trial court’s legal conclusions. Bowden v.
Ward, 27 S.W.3d 913, 916 (Tenn. 2000). With respect to a discretionary decision made
by a trial court, we review for an abuse of discretion. An abuse of discretion occurs when
a court “has applied an incorrect legal standard, has reached a decision that is illogical,
has based its decision on a clearly erroneous assessment of the evidence, or has employed
reasoning that causes an injustice to the complaining party.” Boyd v. Comdata Network,
Inc., 88 S.W.3d 203, 211-12 (Tenn. Ct. App. 2002).
DISCUSSION
As indicated above, a host of issues are presented for our review in this appeal. To
begin our discussion, we will examine the monetary judgment Air Comfort received
against Knestrick. In connection therewith, we will explore whether the amount of the
judgment was proper and whether Knestrick was entitled to apply liquidated damages to
Air Comfort’s claims for payment. Further, we will discuss whether Air Comfort’s
remedies are limited to breach of contract and examine whether other legal theories, or
other specific relief such as attorney’s fees, are properly implicated in this case.
The primary dispute between Air Comfort and Knestrick concerns whether
Knestrick paid all amounts owed to Air Comfort under the subcontract entered into
between the two parties. We address this matter not only in connection with Air
Comfort’s breach of contract claim, but also with respect to Air Comfort’s request for
relief pursuant to the Prompt Pay Act, see Tenn. Code Ann. § 66-34-101 et seq. Of
considerable importance to the discussion is Knestrick’s contention that it had the right to
withhold payments and assess liquidated damages. The proof at trial showed that
Knestrick assessed $72,000.00 in liquidated damages against Air Comfort due to delayed
performance regarding the HVAC work for the project.
Curiously, although the trial court awarded Air Comfort a judgment for breach of
contract upon finding that it should receive a credit for certain of the liquidated damages
that had been assessed against it by Knestrick for delayed performance, the court did not
find that any violation of the Prompt Pay Act had been committed. It reached this
conclusion notwithstanding the fact that Air Comfort had made applications for payment,
provided Knestrick notice of nonpayment, and Knestrick had not paid all the amounts
owed. The trial court reasoned that a claim under the Prompt Pay Act was “not
established” given its “conclusion that the . . . liquidated damages provisions were legally
-7-
enforceable.” In our view, there is a lack of cohesion between the trial court’s factual
findings and its legal conclusions. Indeed, even assuming that Knestrick was entitled to
assess some amount of liquidated damages against Air Comfort, the trial court itself
clearly held that not all of the funds owed to Air Comfort had been paid, as it refused to
sanction the entirety of Knestrick’s $72,000.00 liquidated damages assessment. As the
trial court’s order confirms that additional payment was owed to Air Comfort for its work
under the subcontract, and the record reflects that this payment was not made despite
applications for payment3 and notice of nonpayment submitted to Knestrick, the
conclusion that there was no Prompt Pay Act violation is untenable.
Knestrick vigorously maintains there was no Prompt Pay Act violation because it
was entitled to withhold payment from Air Comfort. It notes that under Tennessee Code
Annotated section 66-34-303, a contractor may withhold a portion of payment provided
that such withheld payment is in accordance with the contract between the contractor and
subcontractor, see Tenn. Code Ann. § 66-34-303, and here, Knestrick notes that the
subcontract at issue allowed for a withholding of liquidated damages. No doubt, the
Knestrick-Air Comfort subcontract did provide for liquidated damages, but as already
noted, the trial court concluded that Knestrick withheld certain liquidated damages to
which it was not entitled. Inasmuch as Knestrick has not challenged the trial court’s
determination that a credit, and resulting judgment, was owed to Air Comfort regarding
the withheld liquidated damages, there is no reasonable dispute that money was owed to
Air Comfort when it sought payment from Knestrick in its renewed payment application.
Moreover, even assuming that Knestrick had properly withheld the entirety of the
originally assessed $72,000.00 in liquidated damages, the record reflects that additional
sums were still owed to Air Comfort. In this vein, we note that Knestrick actually
withheld more than $72,000.00 from the balance owed Air Comfort. In a renewed
payment application submitted to Knestrick after the project was completed, Air Comfort
requested a sum totaling $85,960.50 for unpaid HVAC work on the project. Absent any
application of liquidated damages, which is a subject of controversy on appeal, there does
not appear to be any reasonable dispute that Air Comfort earned this amount with respect
to its performance on the Centennial Sportsplex expansion. The proof readily showed
that the HVAC equipment was installed and that the project reached substantial
completion. Having performed the contracted work, Air Comfort was owed the balance
of its subcontract amount absent a valid application of offsetting damages. Yet, when
pressed by this Court at oral argument how some amount was not owed to Air Comfort
considering $85,960.50 in work under the contract had not been paid and only
$72,000.00 in liquidated damages had been assessed, counsel for Knestrick argued that
3
In its brief on appeal, Knestrick remarks that applications for payment were made when Air Comfort’s
work was not complete, specifically claiming that certain evidence at trial showed that all conditions
precedent to final payment were not technically satisfied until May 12, 2014. This argument aside, we
note that the record contains evidence that a renewed payment application regarding the amount sought
by Air Comfort was made after that date.
-8-
his client could have assessed 102 days of liquidated damages. Although such an
assessment, if permissible, would have clearly vitiated any right to payment in Air
Comfort’s favor, Knestrick of course did not assess 102 days of liquidated damages.
Moreover, Knestrick has not objected to the trial court’s finding that the assessment of 72
days of liquidated damages was itself improper.
In light of the above, although we certainly agree with the trial court that Air
Comfort is entitled to a judgment for breach of contract, we respectfully disagree that the
Prompt Pay Act was not violated. Simply put, Air Comfort was owed money when it
submitted a renewed payment application after the completion of the project, and
Knestrick never made payment after receiving notice of nonpayment. This failure to pay
not only makes Knestrick liable under the contract, but pursuant to the Prompt Pay Act,
makes Knestrick potentially subject to an assessment of attorney’s fees. See Tenn. Code
Ann. § 66-34-602 (providing that where payment is not made after notice of nonpayment,
the notifying party may seek relief in chancery court, where reasonable attorney’s fees
“may be awarded against the nonprevailing party”).
Before addressing the matter of attorney’s fees under the Prompt Pay Act, we will
first review the propriety of the specific contractual amount that the trial court awarded to
Air Comfort. As noted earlier, the trial court concluded that Air Comfort was entitled to
a judgment in the amount of $15,000.00. Although we can ascertain from where the trial
court arrived at this number, see infra, the trial court’s ruling on this issue has still
confused both this Court and the parties4 on appeal. As further detailed herein, we
respectfully conclude that the evidence preponderates in favor of a higher breach of
contract judgment than that awarded by the trial court.
The current judgment of $15,000.00 clearly follows from the trial court’s effective
conclusion that 57 days of liquidated damages, which is 15 days less than 72 days, was
the outer limit of a permissible assessment of liquidated damages under the subcontract.
In relevant portion, the trial court’s order stated as follows:
[T]he Court determines that Air Comfort is . . . entitled to a fifteen-day
credit toward the seventy-two day liquidated damages assessment made by
Knestrick against Air Comfort.
....
Air Comfort, therefore, is entitled to a breach of contract judgment
against Knestrick in the base amount of $15,000.00.
4
We note that at oral argument, upon questioning by the panel, counsel for Air Comfort and counsel for
Knestrick both articulated some confusion as to how the trial court arrived at a judgment of $15,000.00.
-9-
Although the court’s order therefore unmistakably sets out its basis of Air Comfort’s
specific $15,000.00 judgment against Knestrick, we fail to comprehend how the
judgment is an accurate one based upon the record. Indeed, if an assessment for only 57
days of liquidated damages was proper and the unpaid balance for completed work on Air
Comfort’s subcontract was over $85,000.00, the judgment should have been higher than
$15,000.00. Specifically, assuming that Knestrick was entitled to assess 57 days’ worth
of liquidated damages, the evidence preponderates in favor of a finding that the judgment
should have been $28,960.50 ($85,960.50-$57,000.00).
The propriety of such a modified judgment is itself dependent upon reaching a
conclusion that an assessment of liquidated damages for 57 days was even proper. This
issue requires our review herein, because perhaps not unsurprisingly, Air Comfort argues
that Knestrick was not entitled to assess any liquidated damages against it. For the
reasons set forth below, we are in agreement with Air Comfort’s position on this issue.5
As Air Comfort has pointed out, a party is not allowed to recover liquidated
damages “where he is responsible for or has contributed to the delay or nonperformance
alleged as breach.” V.L. Nicholson Co. v. Transcon Inv. & Financial Ltd., Inc., 595
S.W.2d 474, 484 (Tenn. 1980). Applying this principle in Airline Construction, Inc. v.
Barr, 807 S.W.2d 247 (Tenn. Ct. App. 1990), this Court held that the trial court in that
case should not have awarded liquidated damages to a party that had “at the very least
contributed to some of the delays” on a construction project. Id. at 262. As we
explained:
Although Barr and the trial court have both pointed to numerous
delays that were attributable to Airline, we cannot hold the plaintiff liable
for all the delays merely because Airline’s delays may have outweighed
those occasioned by Barr. The law in Tennessee is contrary to this
conclusion. Liquidated damages will not be awarded to one that has
contributed to or mutually caused the delay or breach. V.L. Nicholson
Company v. Transcon Investment and Financial Ltd., Inc., 595 S.W.2d at
484, citing Glassman Const. Co., Inc. v. Maryland City Plaza, Inc., 371
F. Supp. 1154 (D.C. Md. 1974), aff’d, 530 F.2d 968 (4th Cir. 1975); 9
Tennessee Jurisprudence, Damages, § 29 (1983).
5
Although we agree with Air Comfort’s position that Knestrick should not be allowed to recover
liquidated damages in connection with this case, we do not find favor in its specific argument that
liquidated damages are unavailable due to a withdrawal of a liquidated damages claim. To the extent that
Knestrick “withdrew” its claim for liquidated damages, Knestrick merely withdrew a request for a
monetary judgment. Indeed, whereas a monetary claim for liquidated damages had clearly been asserted,
counsel for Knestrick clarified at trial that Knestrick was not actually seeking a specific monetary
judgment for such damages. Instead, counsel made clear that Knestrick was simply seeking confirmation
that it had been entitled to previously withhold such funds based on a right to liquidated damages.
- 10 -
The defendant in this case could have recovered “actual” delay
damages, See Mayo, Tennessee Law of Damages, § 15-5 (1988). However,
absent proof of such damages there can be no award.
Id.
After Knestrick raised the propriety of its right to assess liquidated damages in its
cross-claim against Air Comfort,6 Air Comfort filed an answer denying that it was
responsible for liquidated damages. Among other things, it asserted that Knestrick had
delayed the project and construction of the building at the Centennial Sportsplex
expansion. This argument is not without substantial support in the record. Similar to the
Airline case, the party claiming liquidated damages here—Knestrick—clearly contributed
to a portion of the delay on the project. The evidence at trial showed that the completion
of Air Comfort’s HVAC installation work was dependent on the existence of a building,
and roof, at the project site. The evidence at trial reflected that Knestrick was responsible
for delay relative to the construction of the building that impacted Air Comfort’s ability
to perform. Indeed, when Knestrick’s owner, William Knestrick, was asked at trial
whether any causes of delay on the project were Knestrick’s responsibility, he responded,
“Now I realize that to be the case.” Regarding the sequence of activities on the project,
we note that several of Air Comfort’s tasks on the project were scheduled to start in the
fall of 2013. For example, Knestrick’s Vice President of Operations, Jerry Thurman,
testified specifically concerning two activities, noting that there had been scheduled start
dates of September 30, 2013 and October 21, 2013. Air Comfort’s ability to complete its
work, however, was hindered given the lack of a building on the site. When asked at trial
if a building had been erected as of October 2013 for Air Comfort to install mechanical
equipment, Mr. Thurman responded, “I would doubt that since the slabs [were] not
poured until the 4th of November.” Mr. Thurman’s testimony further indicated that
although Knestrick had not completed the slab until November 4, 2013, such work had
originally been scheduled for completion many months earlier, in July 2013. Mr.
Thurman testified that the pouring of the slab was a critical path activity, confirming that
the building on the site could not be built in the absence of a slab on which to put the
building. Necessarily, therefore, the delay in the slab pouring caused delays in the
construction of the building, thereby contributing to delayed performance of Air Comfort.
According to Mr. Thurman’s testimony, it was a “fair statement” that the building may
have “been up” by early December 2013 but not all “dried in.” For a building to be
considered “dried in,” Mr. Thurman indicated that it would need, among other things, a
roof.
6
Although the cross-claim specifically sought a judgment for $72,000.00 against Air Comfort, Knestrick,
as we detailed in a previous footnote, clarified at trial that it was not actually seeking a judgment for that
amount in liquidated damages, but rather, confirmation that the previous withholding of that amount as
liquidated damages had been proper.
- 11 -
The proof at trial showed that delays on the project were evident fairly early on in
the process. Charles Lampley, a senior project manager at Air Comfort, testified that in
July 2013, after the subcontract had been signed, he went to the project site. Regarding
the status of construction by Knestrick at that time, he stated, “Basically, there was no
work done on site.” Timeline notes made by Chris Koster, Special Projects Manager
with Metro’s Board of Parks and Recreation, detailed several aspects of the delay on the
project. A note regarding the project status on July 23, 2013 indicated as follows:
MP demands a recovery action plan from KNI to make up time on the
schedule. MP requests KNI to increase needed manpower on site, increase
hours and/or weekends, cut float time from the schedule and look at critical
path activities to show a method of making up time on the schedule. MP
informs KNI that this request has been outstanding for 2 months now and
expects it to be delivered to MP by close of business 8.2.13.
A subsequent note regarding August 2, 2013 indicated that the requested recovery plan
had not been delivered. Another note regarding a time period spanning from July 2013 to
August 2013 indicated as follows: “3 weeks passed without demo of site being
completed despite assurances from KNI that this would be a 2 day project.”
Included among the many detailed project delays, Mr. Koster’s notes have several
entries regarding the delayed slab pouring for the project. A note regarding September
17, 2013 stated that “KNI indicates slab pour will now occur at the end of the month.”
Several subsequent notes for October 2013 detail the slab pouring not having been
completed. Given the delays on the project, Metro expressed its concern to Knestrick. In
an email sent on October 9, 2013, the Director of the Parks Department noted the
“significant contractor delay” and stated that whereas the project should have then been
past 50% completion, payment applications indicated it was only at about 10%
completion. The email was critical of Knestrick’s attention to the matter, noting in
relevant part as follows:
Our project manager has been requesting a Recovery Plan from
Knestrick since June demonstrating how you intend to devote resources and
manage the construction to get back on schedule. As of this month we still
have not seen an effort to provide a recovery plan or devote the resources
on site to make up lost time. At this time, this department finds the
response by your company to these requests and effort to recover time to be
insufficient and unacceptable.
Therefore, the Metro Purchasing director and I would like to meet
with you, or whoever is most appropriate within the Knestrick
administration, to discuss these and other issues related to performance on
this contract and what options are available moving forward.
- 12 -
Knestrick eventually received an extension from Metro to reach substantial
completion, and although no formal amendment was reached between Knestrick and Air
Comfort, Mr. Thurman testified that the awarded 55-day extension was passed on to
subcontractors. The proof showed that the extension was not necessitated by Air
Comfort in any way. Moreover, the proof showed that measuring Air Comfort’s
performance relative to such an extension was improper. Whereas Knestrick had
originally sought an 84-day extension, it was untimely in seeking this request from
Metro. The trial court itself noted that there were “delays attendant to Knestrick’s failure
to obtain a full 84-day extension of the original Project schedule,” and therefore, the court
was of the opinion that a full measure of liquidated damages was improper. In discussing
the insufficiency of the awarded extension and taking note of delays attributable solely to
Knestrick, the trial court stated as follows:
The Court concludes that adding 55 days was an insufficient extension for
delays that cannot be attributable to any party to this lawsuit, except
Knestrick. Because of this delay, the pouring of the slab, for example, was
delayed from a completion date of on or about July 1, 2013 (as originally
scheduled) until November 4, 2013 (as completed). Knestrick asked for 84
days from Metro but was only awarded 55 days, in part, because Knestrick
did not request the extension within the 21-day period for such requests
prescribed by the Construction Contract. Similarly, Knestrick did not
challenge Metro’s award of 55 days or bring Metro into this litigation
because it apparently wanted to keep its good business relationship with
Metro. Unfortunately, this desire to keep a good business relationship with
Metro should not allow Knestrick to summarily pass on all of the liquidated
damages it sought to pass on to Air Comfort.
The trial court nonetheless sanctioned the assessment of liquidated damages by
Knestrick against Air Comfort. In light of the court’s own findings about Knestrick’s
delay and the proof that Knestrick had contributed to the delay on the project and Air
Comfort’s performance, we hold that Knestrick’s assessment of liquidated damages
against Air Comfort was improper. Again, a party is not allowed to recover liquidated
damages “where he is responsible for or has contributed to the delay or nonperformance
alleged as breach.” V.L. Nicholson Co., 595 S.W.2d at 484. Actual delay damages could
have been pursued against Air Comfort, see Airline Constr., Inc., 807 S.W.2d at 262, but
the trial court’s approval of Knestrick’s assessment of liquidated damages was improper
in light of Knestrick’s clear contribution to the delay. Moreover, case law instructs that it
would matter not if Air Comfort had been responsible for delays that outweighed those
occasioned by Knestrick. See id. (“Although Barr and the trial court have both pointed
to numerous delays that were attributable to Airline, we cannot hold the plaintiff liable
for all the delays merely because Airline’s delays may have outweighed those occasioned
by Barr. The law in Tennessee is contrary to this conclusion. Liquidated damages will
not be awarded to one that has contributed to or mutually caused the delay or breach.”).
- 13 -
We, therefore, conclude that the evidence preponderates in favor of a finding that the
amount owed to Air Comfort is $85,960.50. We hereby modify Air Comfort’s judgment
against Knestrick in this amount.7
Turning to the question of attorney’s fees, and as mentioned earlier herein,
Knestrick’s failure to pay Air Comfort following Air Comfort’s notice of nonpayment
makes it potentially subject to an assessment of attorney’s fees under the Prompt Pay Act.
See Tenn. Code Ann. § 66-34-602 (providing that where payment is not made after notice
of nonpayment, the notifying party may seek relief in chancery court, where reasonable
attorney’s fees “may be awarded against the nonprevailing party”). Specifically, the
statute provides that fees may be awarded if the nonprevailing party has acted in bad
faith. Classic City Mech., Inc. v. Potter S. E., LLC, No. E2015-01890-COA-R3-CV,
2016 WL 5956616, at *17 (Tenn. Ct. App. Oct. 14, 2016) (quoting Tenn. Code Ann. §
66-34-602(b)). In discussing what constitutes bad faith, a previous panel of this Court
stated as follows:
Although a finding of bad faith is a prerequisite to an award of
attorney’s fees under the statute, what constitutes bad faith is not statutorily
defined. Previous courts have determined that “acts taken in bad faith
involve knowing or reckless disregard for contractual rights or duties.”
Madden Phillips Constr., Inc., 315 S.W.3d at 829 (citation omitted).
Moreover, in Trinity Industries, Inc. v. McKinnon Bridge Co., Inc., 77
S.W.3d 159 (Tenn. Ct. App. 2001), we affirmed a trial court’s finding that a
company had not acted in bad faith when we concluded that we had “no
doubt that [the company’s] principals honestly believed that their company
did not owe the money claimed by [the plaintiff].” Id. at 181.
Id.
On appeal, Knestrick argues that attorney’s fees are improper for two reasons.
First, it argues that it cannot have liability for attorney’s fees because it is a prevailing
party concerning the Prompt Pay Act claim asserted. Second, it argues that certain
7
In addition to pursuing a contractual claim and seeking relief under the Prompt Pay Act, Air Comfort
has advanced a separate common law conversion claim. We find no basis to disturb the trial court’s
rejection of this claim. As one court has noted, “[a] tort action only arises when the act constituting the
contract breach also constitutes a breach of a common law duty independent of the contractual
relationship.” Yinghong Mach. Int’l Ltd. v. Wholesale Equip., Co., No. 2:13-cv-02671-JTF-cgc, 2014 WL
12887673, at *4 (W.D. Tenn. Oct. 17, 2014) (citing Green v. Moore, No. M2000-03035-COA-R3-CV,
2001 WL 1660828, at *3 (Tenn. Ct. App. 2001)). Here, the alleged conversion is predicated on
Knestrick’s failure to pay sums allegedly owed in accordance with the subcontract. Being necessarily
founded upon a breach of contract, we are of the opinion that the claim fails. See id. (dismissing
conversion claim for failure to state a claim when the plaintiff alleged breach of contract and failed to
show a duty separate and apart from a contractual obligation).
- 14 -
findings by the trial court demonstrate that it acted in good faith. We have already
dispensed with the first argument and have concluded that the Prompt Pay Act was
violated. Thus, attorney’s fees may be awarded if there was bad faith on the part of
Knestrick. This requires us to confront Knestrick’s second argument concerning the trial
court’s findings. Although the trial court appeared to dismiss Air Comfort’s claim for
attorney’s fees on the basis that the Prompt Pay Act was not violated, the court also made
a number of findings that pertain to the issue of Knestrick’s bad faith, or lack thereof.
Indeed, Knestrick correctly acknowledges that the trial court held that the parties “had a
good faith dispute.” Moreover, we observe that the court held that Knestrick’s
withholding of money was “not wrongful” and “was accomplished in keeping with a
claim of right provided under an enforceable contract between the parties.” Respectfully,
based on our review of this voluminous record, we are of the opinion that the evidence
preponderates in favor of a finding that Knestrick did act in bad faith. Indeed, acts in bad
faith can include those that involve a “reckless disregard” for contractual rights. Id. We
are of the opinion that the evidence readily establishes such a standard here, because
again, even though $72,000.00 in liquidated damages was assessed, Knestrick failed to
pay for completed work under the subcontract that it acknowledged totaled $85,960.50.
The amount withheld was thus undeniably several thousand dollars more than the
claimed liquidated damages. At a minimum, the evidence supports a conclusion that
Knestrick acted in reckless disregard with regard to its withholding of the difference
between the balance of the unpaid work completed by Air Comfort and the assessed
liquidated damages.8 In light of our determination that the Prompt Pay Act was violated
and our conclusion that the evidence preponderates in favor of a finding that Knestrick
acted in bad faith, we hereby remand the case to the trial court for a reconsideration of
Air Comfort’s request for attorney’s fees. See Tenn. Code Ann. § 66-34-602(b)
(emphasis added) (“Reasonable attorney’s fees may be awarded against the nonprevailing
party; provided, that such nonprevailing party has acted in bad faith.”).
Regarding the discretionary costs and attorney’s fees awarded against Air
Comfort, we hereby reverse these awards. As to the issue of discretionary costs, which is
governed by Rule 54.04 of the Tennessee Rules of Civil Procedure, this Court has
previously outlined when such costs may be awarded and what factors should accompany
a trial court’s ruling on the matter:
A “prevailing party” may request discretionary costs, such as
“reasonable and necessary court reporter expenses for depositions or trials,
[and] reasonable and necessary expert witness fees for depositions (or
stipulated reports) and for trials.” Tenn. R. Civ. P. 54.04(2). The purpose
of awarding discretionary costs is to help “make
8
Although Knestrick advances the argument that it could have assessed more than $72,000.00 in
liquidated damages, we note again that it did not do so. Moreover, as mentioned earlier in this Opinion, it
has not challenged the trial court’s determination that the liquidated damages it did assess were excessive.
- 15 -
the prevailing party whole,” not to punish the losing party. Owens v.
Owens, 241 S.W.3d 478, 496–497 (Tenn.Ct.App.2007).
When deciding whether to award discretionary costs under Rule 54.04(2),
the trial court should:
(1) determine whether the party requesting the costs is the
“prevailing party,”
(2) limit awards to the costs specifically identified in the rule,
(3) determine whether the requested costs are necessary and reasonable, and
(4) determine whether the prevailing party has engaged in conduct during
the litigation that warrants depriving it of the discretionary costs to which it
might otherwise be entitled.
Mass. Mut. Life Ins. Co. v. Jefferson, 104 S.W.3d 13, 35–36 (Tenn. Ct.App.
2002) (citations omitted). The burden is on the movant to convince the trial
court that it is entitled to discretionary costs, Carpenter v. Klepper, 205
S.W.3d 474, 490 (Tenn. Ct. App. 2006); however, as a general matter,
courts should “award discretionary costs to a prevailing party if the costs
are reasonable and necessary and if the prevailing party has filed a timely
and properly supported motion.” Mass. Mut. Life Ins. Co., 104 S.W.3d at
35.
Rule 54.04(2) costs expressly address themselves to the sound discretion of
the trial court. Stalsworth v. Grummons, 36 S.W.3d 832, 835
(Tenn.Ct.App.2000). Accordingly, trial courts are free to apportion the
costs between the parties as “the equities of each case demand.” Sanders v.
Gray, 989 S.W.2d 343, 345 (Tenn. Ct. App. 1998). Therefore, on appeal,
this Court will not substitute our own discretion for that of the trial
court. State ex rel. Vaughn v. Kaatrude, 21 S.W.3d 244, 248 (Tenn. Ct.
App. 2000).
Freeman v. CSX Transp., Inc., 359 S.W.3d 171, 179–80 (Tenn. Ct. App. 2010).
In this case, the trial court concluded that Knestrick, not Air Comfort, was entitled
to discretionary costs. In so ruling, the court held that Air Comfort was not a prevailing
party and noted that it had not established a Prompt Pay Act claim. In contrast, the trial
court concluded that Knestrick was a prevailing party. Given our previous discussion and
the relief awarded herein in Air Comfort’s favor, we are of the opinion that Air Comfort
should properly be considered the prevailing party as to its claims against Knestrick.
Consequently, upon remand of this case, the trial court is directed to consider whether Air
Comfort, as the prevailing party, is entitled to discretionary costs, provided Air Comfort
files a new motion for discretionary costs within thirty days after the filing of the
- 16 -
mandate by this Court. See Tenn. R. Civ. P. 54.04(2) (“In the event an appeal results in
the final disposition of the case, under which there is a different prevailing party than the
prevailing party under the trial court’s judgment, the new prevailing party may request
discretionary costs by filing a motion in the trial court, which motion shall be filed and
served within thirty (30) days after filing of the appellate court’s mandate in the trial
court.”).
Also at issue is Air Comfort’s request for prejudgment interest. In denying
prejudgment interest to Air Comfort, the trial court held as follows: “Given that
Knestrick withheld the liquidated damages against Air Comfort under a claim of right
under an enforceable liquidated damages provision and given that the amount of potential
damages was not necessarily liquidated or ascertainable, the Court declines to award Air
Comfort prejudgment interest against Knestrick.” According to Air Comfort, this ruling
should be reversed. For the reasons that follow, we agree.
As pointed out by Air Comfort, trial courts are authorized to award prejudgment
interest pursuant to Tennessee Code Annotated section 47-14-123.9 Although the
decision to make such an award is discretionary, see Story v. Lanier, 166 S.W.3d 167,
181 (Tenn. Ct. App. 2004) (noting that a trial court “is vested with considerable
discretion when determining whether prejudgment interest is warranted”), a trial court’s
action is not immunized from challenge on appeal. Indeed, “appellate deference is not
synonymous with rubber stamping a trial court’s decision.” Scholz v. S.B. Int’l, Inc., 40
S.W.3d 78, 82 (Tenn. Ct. App. 2000).
In discussing the relevant considerations that must be taken into account regarding
a claim for prejudgment interest, the Tennessee Supreme Court stated as follows in Myint
v. Allstate Insurance Co.:
Several principles guide trial courts in exercising their discretion to
award or deny prejudgment interest. Foremost are the principles of equity.
Tenn. Code Ann. § 47–14–123. Simply stated, the court must decide
whether the award of prejudgment interest is fair, given the particular
circumstances of the case. In reaching an equitable decision, a court must
keep in mind that the purpose of awarding the interest is to fully
compensate a plaintiff for the loss of the use of funds to which he or she
was legally entitled, not to penalize a defendant for wrongdoing. Mitchell v.
Mitchell, 876 S.W.2d 830, 832 (Tenn.1994); Otis, 850 S.W.2d at 446.
9
We recognize that inasmuch as we have determined that a violation of the Prompt Pay Act occurred,
there appears to be an argument that some interest should have been awarded as a matter of right. Indeed,
the Prompt Pay Act provides that “[a]ny payment not made in accordance with this chapter shall accrue
interest.” Tenn. Code Ann. § 66-34-601. However, no such issue was advanced by Air Comfort, who
limited its argument regarding interest to the interest available under Tennessee Code Annotated section
47-14-123.
- 17 -
In addition to the principles of equity, two other criteria have
emerged from Tennessee common law. The first criterion provides that
prejudgment interest is allowed when the amount of the obligation is
certain, or can be ascertained by a proper accounting, and the amount is not
disputed on reasonable grounds. Mitchell, 876 S.W.2d at 832. The second
provides that interest is allowed when the existence of the obligation itself
is not disputed on reasonable grounds. Id. (citing Textile Workers Union v.
Brookside Mills, Inc., 205 Tenn. 394, 402, 326 S.W.2d 671, 675 (1959)).
We note that these criteria, if strictly construed, could prohibit the
recovery of prejudgment interest in the vast majority of cases. Indeed, only
a liquidated claim, for which prejudgment interest is already recoverable as
a matter of right under Tenn.Code Ann. § 47–14–109, can truly be
considered an obligation of certain and indisputable amount. Further, it is
safe to say that, at trial, defendants usually can articulate at least one good
reason for disputing the existence of the obligation, for were it otherwise,
defendants would rarely survive summary judgment. Finally, the focus on
whether the defendant had a reasonable defense ignores the principle that
prejudgment interest is not a penalty imposed on the defendant for
indefensible conduct.
Not surprisingly, an analysis of relevant case law reveals that these
criteria have not been used to deny prejudgment interest in every case
where the defendant reasonably disputed the existence or amount of an
obligation. More typically, courts either use the certainty of a claim as
support for an award of prejudgment interest, or they do not discuss the
certainty of the claim at all. See, e.g., Mitchell, 876 S.W.2d at 832
(allowing the award of interest where the existence and amount of the
obligation under a settlement agreement were not reasonably
disputed); Otis, 850 S.W.2d at 446 (allowing the award of interest to a
plaintiff whose right to recover under a fire insurance contract was
reasonably disputed on the grounds of arson and
misrepresentation); Performance Systems, Inc. v. First American Nat.
Bank, 554 S.W.2d 616, 619 (Tenn.1977) (allowing the award of interest,
although the existence of the defendant's obligation under the lease was
reasonably disputed); Johnson v. Tennessee Farmers Mut. Ins. Co., 556
S.W.2d 750, 752 (Tenn.1977)(allowing the award of interest, although the
amount of recovery under the insurance claim was reasonably
disputed); Uhlhorn v. Keltner, 723 S.W.2d 131, 138 (Tenn.App.1986)
(allowing award of interest in a boundary dispute case, where the existence
of any obligation to pay rent and the amount of rent due were both
reasonably disputed); Schoen v. J.C. Bradford & Co., 667 S.W.2d 97, 101–
- 18 -
02 (Tenn.App.1984)(rejecting argument that prejudgment interest should
not be imposed when defendant appealed in good faith).
Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927–28 (Tenn. 1998) (footnote omitted).
Whereas the Supreme Court noted that past decisions existed where interest was not
allowed when there was a good faith dispute, the Supreme Court stated that such cases
were overruled “[t]o the extent . . . [they] suggest[ed] that prejudgment interest can never
be awarded when a claim is reasonably disputed.” Id. at 928 n.7.
Writing for this Court, then Judge Koch explained the Supreme Court’s action in
Myint as follows:
As we construe the Myint decision, the Tennessee Supreme Court has
shifted the balance to favor awarding prejudgment interest whenever doing
so will more fully compensate plaintiffs for the loss of use of their funds.
Fairness will, in almost all cases, require that a successful plaintiff be fully
compensated by the defendant for all losses caused by the defendant,
including the loss of use of money the plaintiff should have received. That
is not to say that trial courts must grant prejudgment interest in absolutely
every case. Prejudgment interest may at times be inappropriate such as (1)
when the party seeking prejudgment interest has been so inexcusably
dilatory in pursuing a claim that consideration of a claim based on loss of
use of the money would have little weight; (2) when the party seeking
prejudgment interest has unreasonably delayed the proceedings after suit
was filed; or (3) when the party seeking prejudgment interest has already
been otherwise compensated for the lost time value of its money.
Scholz, 40 S.W.3d at 83 (internal citations omitted).
In light of the Supreme Court’s discussion in Myint and this Court’s discussion in
Scholz, we conclude that the trial court’s denial of prejudgment interest to Air Comfort
was in error. Initially, we fail to comprehend how the court concluded that “the amount
of potential damages was not necessarily . . . ascertainable.” There was not any dispute
that the HVAC work had been performed and completed, and further, it is clear that the
work had a certain value under the subcontract. No doubt, Knestrick defended Air
Comfort’s claim for damages by relying on its own assessment of liquidated damages,
but it seems evident that the amount of damages was ascertainable upon resolution of the
liquidated damages question. Indeed, the calculation of damages, properly implemented,
could have been achieved by simply subtracting the amount of any permissible liquidated
damages from the balance owed under the subcontract.
Additionally, it appears that the trial court lost sight of the economic purpose of
prejudgment interest. Awards of prejudgment interest are “based on the recognition that
- 19 -
a party is damaged by being forced to forego the use of its money over time.” Id. at 82.
Interest is awarded, not to punish a defendant, but to compensate the wronged party. Id.
Thus, whereas the bad faith, or lack thereof, of a defendant is not really the proper focal
point, the trial court here appeared to place emphasis on this consideration, specifically
noting as follows in its denial of prejudgment interest: “Given that Knestrick withheld
the liquidated damages against Air Comfort under a claim of right under an enforceable
liquidated damages provision . . . the Court declines to award Air Comfort prejudgment
interest.” Knestrick’s own brief characterizes the court’s finding as determining that
“Knestrick operated under a good faith claim of right.” This proffered justification is a
significantly devalued one in light of the Myint and Scholz decisions, and here, we are of
the opinion that it cannot properly be invoked to deny Air Comfort prejudgment interest.
Again, “[f]airness will, in almost all cases, require that a successful plaintiff be fully
compensated by the defendant for all losses caused by the defendant, including the loss of
use of money the plaintiff should have received.” Id. at 83. The trial court’s cited
justifications do not survive scrutiny here, and there is no question that Air Comfort has
been deprived of money that it should have received.10 We reverse the trial court’s denial
of prejudgment interest to Air Comfort and remand the case with instructions to calculate
and award Air Comfort the prejudgment interest to which it is entitled.
To briefly recap, Air Comfort should be considered a prevailing party in its
litigation against Knestrick, which, as noted, has resulted in a much higher modified
judgment herein. The award of attorney’s fees against Air Comfort is reversed, as is the
award of discretionary costs. The trial court is directed to reconsider Air Comfort’s
request for attorney’s fees upon remand, and, if a new motion for discretionary costs is
timely filed by Air Comfort, is directed to consider that issue as well. Further, as noted,
we agree with Air Comfort that the trial court erred in denying it prejudgment interest.
Having addressed the various questions between Air Comfort and Knestrick, we
now turn to the points of dispute between E Solutions and Air Comfort. As noted earlier,
the trial court awarded E Solutions a judgment in the amount of $42,847.98. While Air
Comfort claims that the trial court erred in awarding E Solutions any judgment, E
Solutions argues that the awarded judgment was insufficient. For the reasons that follow,
we agree with E Solutions.
The primary dispute between Air Comfort and E Solutions relates to Air
Comfort’s failure to pay for the equipment it purchased from E Solutions. Testimony at
trial revealed that the amount unpaid from certain invoices was $52,847.98, but, when
awarding E Solutions a judgment, the trial court reduced this amount by $10,000.00 upon
10
Knestrick obviously disputes that Air Comfort is entitled to the full sum it has claimed, but as we have
noted, even Knestrick has not challenged the trial court’s decision to award some type of monetary
judgment to Air Comfort. Indeed, regarding the credit and resulting judgment afforded to Air Comfort by
the trial court, Knestrick states as follows in its brief: “Knestrick avers that the assessment [of the credit]
was a proper resolution . . . and should not be overturned on appeal.”
- 20 -
finding that E Solutions was responsible for ten days of delay on the project. In support
of its position that no judgment should have been awarded to E Solutions, Air Comfort
claims that E Solutions materially breached the contract between the two parties by
failing to deliver equipment on or before December 13, 2013. We disagree. Although
the purchase order recited a December 13, 2013 delivery date, the attached terms and
conditions, as we have already noted, indicated that shipment dates were estimates only.
Specifically, the terms of the contract provided that “[n]o valid contract may be made to
ship within or at a specified time unless in writing, signed by an authorized signatory of
Seller.” There was no evidence of any such authorization in this case. Moreover,
testimony at trial, from representatives of both E Solutions and Air Comfort, revealed
that there was no expectation that all equipment would be delivered by December 13.
According to Brent Bill, account manager at E Solutions, his client waited to order
equipment in order to align delivery of the equipment with the actual need for the
equipment:
I was waiting to be released by Air Comfort and I had conversations with
[Mr. Lampley] asking when we should release that equipment.
Part of the flow of the job, like we mentioned before, is delivering
the equipment when it best suits them so they do not have to incur storage
fees or transfer fees. So we were trying to provide it just in time for the
delivery of the equipment.
Although Mr. Lampley’s testimony was somewhat contradictory at places, it did indicate
that Air Comfort did not expect delivery of the equipment before December 13 given the
lead times. Thus, aside from the fact that the contract did not obligate E Solutions to
deliver equipment on or before the claimed December 13 date, there was testimony on
both sides evidencing a lack of expectation of any such delivery.
Moreover, as previously stated, the contract between the two parties provided that
E Solutions’ duty to perform was contingent upon, among other things, the “inability to
procure materials from the usual sources of supply” and other causes beyond its
“reasonable control.” Evidence at trial showed that when E Solutions ordered equipment,
it ran into issues of equipment not being available. These manufacturing delays, the court
found, were “on balance” outside of E Solutions’ control.
In light of all the above, we find no error in the trial court’s conclusion that Air
Comfort was responsible for paying for the equipment that E Solutions provided. We
respectfully disagree, however, with the trial court’s decision to reduce the amount of E
Solutions’ judgment by $10,000.00. As correctly noted by E Solutions, the trial court,
upon stating that E Solutions was responsible for ten days of delay, essentially passed
down to E Solutions $10,000.00 in liquidated damages that had been assessed against Air
Comfort. We agree with E Solutions that this was error. E Solutions was not a party to
- 21 -
Air Comfort’s contract with Knestrick, nor did the E Solutions-Air Comfort contract
contain a provision allowing for an assessment of liquidated damages. The damages
assessed were not in any way foreseeable or tied to a contractual basis in the parties’
contract. Even assuming there were delays attributable to E Solutions as the court found,
Air Comfort did not present any proof for damages outside of what was in essence a
liquidated damages assessment. We therefore agree with E Solutions that there was no
basis upon which to reduce the judgment to $42,847.98. We hereby enter a modified
judgment in favor of E Solutions against Air Comfort in the amount of $52,847.98.
In addition to awarding E Solutions a base monetary judgment against Air
Comfort for breach of contract, the trial court awarded E Solutions attorney’s fees and
prejudgment interest. On appeal, Air Comfort raises a couple of specific concerns with
respect to these awards. For the reasons that follow, we find no error on the part of the
trial court.
We turn first to the matter of attorney’s fees. A determination of reasonable
attorney’s fees is a discretionary matter, and “[t]here is no fixed mathematical rule in this
jurisdiction for determining reasonable fees.” Killingsworth v. Ted Russell Ford, Inc.,
104 S.W.3d 530, 534 (Tenn. Ct. App. 2002). On appeal, the sole issue raised by Air
Comfort about attorney’s fees is that the trial court, relative to a reduction of the fees
claimed by E Solutions, estimated that the amount of fees expended in claims against
Knestrick and Berkley were one third of the total fees claimed by E Solutions. We fail to
discern any error by the trial court. Again, there is no fixed mathematical rule in
determining fees, and we are of the opinion that the trial court acted appropriately in
attempting to ascertain the amount of fees E Solutions had expended relative to its suit
against Air Comfort, as opposed to those fees it incurred against Knestrick and Berkley.
Moreover, we observe that the trial court took appropriate account of E Solutions’ degree
of success when further reducing the amount of fees claimed by E Solutions. Ultimately,
by taking these reduction factors into account, the court determined that an award of
approximately $51,000.00 in attorney’s fees was appropriate despite an initial attorney’s
fee claim by E Solutions of over $90,000.00. We find no abuse of discretion in the
court’s determination that this fee was reasonable. Moreover, exercising our own
discretion, we are of the opinion that E Solutions is entitled to additional attorney’s fees
for pursuing its appeal against Air Comfort. The contract between these two parties
provided that Air Comfort would be liable for all collection expenses, including
reasonable attorney’s fees, incurred by E Solutions in attempting to collect any amount
due. E Solutions succeeded in this Court in collecting a higher amount for the equipment
it supplied, and we therefore remand the matter to the trial court to award E Solutions the
reasonable attorney’s fees it incurred against Air Comfort on appeal.
Regarding the prejudgment interest awarded to E Solutions, Air Comfort simply
maintains that the trial court erred in determining that October 16, 2018 was the operative
end date by which prejudgment interest should be calculated. We find no error in the
- 22 -
court’s conclusion. The final judgment in this case was not entered until October 16,
2018. The court did not err in allowing prejudgment interest up until that date.
Moreover, on remand the trial court should recalculate the award of prejudgment interest
to take into consideration the increase in the judgment in favor of E Solutions.
We finally turn our attention to the bond claim asserted by E Solutions. In doing
so, we initially note that pursuant to Tennessee Code Annotated section 12-4-201 et seq.,
the General Assembly has created provisions “to provide protection for furnishers of
labor and material on public works because these workmen are not protected by the
mechanics’ and materialmen’s lien laws.” Wal-Bd. Supply Co., Inc. v. Daniels, 629
S.W.2d 686, 687 (Tenn. Ct. App. 1981). These provisions “provide that no contract may
be let for a public project until the contractor executes a bond containing provisions
required by the statute and to the effect that he will pay for all labor and material used in
the project.” Id. As we have already noted, a payment bond was provided in this case in
connection with the Centenntial Sportsplex expansion project for Metro. Knestrick was
the principal under the bond, with Berkley serving as surety.
As a result of E Solutions’ failure to receive payment for the equipment it
provided for the Centennial Sportsplex expansion, E Solutions asserted a bond claim
against Knestrick and Berkley. At trial, the proof showed that $52,847.98 was owed to E
Solutions under unpaid invoices, and further, there was testimony from Charlene
Leonard, one of E Solutions’ owners, establishing that E Solutions had furnished a claim
under the payment bond. The specific notice of claim given by E Solutions was
introduced as an exhibit at trial.
Counsel for Knestrick and Berkley conceded at trial that the bond claim had been
timely made, and there does not appear to be any dispute that E Solutions was not paid
the outstanding $52,847.98 under its invoices. The trial court, however, rejected the bond
claim and held as follows:
The Court concludes that E Solutions is not entitled to judgment against
Knestrick and Berkley on the bond claim because of the Court’s ruling that
Knestrick is not liable to E Solutions and given that E Solutions’ bond
claim is derivative; it cannot be realized unless and until Air Comfort fails
to pay the judgment it owes to E Solutions. Alternatively, it is not clear
from the Complaint that E Solutions was pursuing a statutory bond claim.
As for the court’s lack of clarity about whether this case involved a statutory bond,
we observe that the payment bond, a copy of which was attached to E Solutions’
complaint, contains a provision expressly stating as follows:
When this Bond has been furnished to comply with a statutory or other
legal requirement in the location where the construction was to be
- 23 -
performed, any provision in this Bond conflicting with said statutory or
legal requirement shall be deemed deleted herefrom and provisions
conforming to such statutory or other legal requirement shall be deemed
incorporated herein. When so furnished, the intent is that this Bond shall
be construed as a statutory bond and not as a common law bond.
As for the trial court’s specific conclusion that there can be no recovery on the
bond claim until Air Comfort fails to pay the judgment it owes to E Solutions, we
respectfully disagree. We are unaware of any such limiting requirement, and we observe
that the statute itself simply provides that “[a]ny laborer or furnisher of labor or material
to the contractor, or to any immediate or remote subcontractor under the contractor, may
bring an action on the bond, and have recovery in such laborer’s or furnisher’s own
name.” Tenn. Code Ann. § 12-4-204. Moreover, as E Solutions has illustrated in its
appellate brief, there are a number of practical problems in holding that a bond claim is
not available until a claimant has failed to collect from the party with whom it has
contracted. As E Solutions argued:
If a bond claim is not “ripe” until the claimant has failed to collect on a
judgment against that entity it contracted with, how can the bond claimant
also comply with the very short deadline for providing notice of the bond
claim as required by T.C.A. § 12-4-205? If a bond claim is not “ripe” until
the claimant has failed to collect on a judgment against that entity it
contracted with, how can the bond claimant also comply with the six month
statute of limitations for a bond claim set out in T.C.A. § 12-4-206?
As it is, there is no dispute that a timely bond claim was made. Further, the proof showed
that E Solutions was not paid $52,847.98 under its invoices. In light of the foregoing, we
reverse the trial court on this issue and remand for the entry of a judgment allowing
recovery on E Solutions’ bond claim including prejudgment interest and attorney’s fees.
CONCLUSION
For the reasons discussed above, we affirm in part, affirm in part as modified,
reverse in part, and remand the case for such further proceedings as are necessary and
consistent with this Opinion.
_________________________________
ARNOLD B. GOLDIN, JUDGE
- 24 -