#28580-a-JMK 2020 S.D. 19
IN THE SUPREME COURT OF THE STATE OF SOUTH DAKOTA
****
EXCEL UNDERGROUND, INC., Plaintiff and Appellee,
v.
BRANT LAKE SANITARY DISTRICT, Defendant and Appellant.
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BRANT LAKE SANITARY DISTRICT, Plaintiff and Appellant,
EXCEL UNDERGROUND, INC. & GRANITE RE, INC., Defendants and Appellees,
and
GRANITE RE, INC., Third-Party Plaintiff and Appellee,
REED I. OLSON & MELISSA D. FISCHER-OLSON, Third-Party Defendants.
APPEAL FROM THE CIRCUIT COURT OF THE THIRD JUDICIAL CIRCUIT LAKE COUNTY, SOUTH DAKOTA
THE HONORABLE PATRICK T. PARDY Judge
ARGUED FEBRUARY 20, 2019 OPINION FILED 04/01/20 ELIZABETH S. HERTZ VINCE M. ROCHE of Davenport, Evans, Hurwitz & Smith, LLP Sioux Falls, South Dakota
HEATHER M. LAMMERS BOGARD of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP Rapid City, South Dakota
JEROME B. LAMMERS of Lammers Kleibacker, LLP Madison, South Dakota Attorneys for appellants.
DANIEL K. BRENDTRO Sioux Falls, South Dakota Attorney for appellee Excel Underground, Inc.
JOSEPH A. NILAN DAVID H. GREGERSON of Gregerson, Rosow, Johnson & Nilan, LTD Minneapolis, Minnesota
WILLIAM P. FULLER of Fuller & Williamson, LLP Sioux Falls, South Dakota Attorneys for appellee Granite Re, Inc.
GREGORY WHEELER of Boyce Law Firm, LLP Sioux Falls, South Dakota Attorneys for appellee Schmitz Kalda & Associates.
TODD MEIERHENRY of Meierhenry & Sargent, LLP Sioux Falls, South Dakota Attorneys for amicus curiae Dakota Homestead Title Insurance Company and South Dakota Conservancy District. #28580
KERN, Justice
[¶1.] In 2012, the Brant Lake Sanitary District (the District) contracted
with Schmitz, Kalda, and Associates, Inc. (SKA) to engineer a sewer system and
with Excel Underground, Inc. (Excel) to install it. After lengthy delays, the District
terminated Excel’s contract, and Excel and the District sued each other for breach of
contract. The District also sued Excel’s surety, Granite Re, Inc. (Granite). In
response, Granite filed a third-party complaint for contribution, reimbursement, or
indemnity against the owners of Excel—Reed Olson and Melissa D. Fischer-Olson.
Additionally, the District filed a third-party complaint against SKA for contribution
and indemnity.
[¶2.] Prior to trial, the court granted Excel’s motion to dismiss the District’s
claim for liquidated damages. The court also granted SKA’s motion for summary
judgment on the District’s third-party complaint against it and dismissed SKA from
the suit. However, the court denied the District’s motion for summary judgment
against Excel, and their claims against each other proceeded to a jury trial.
[¶3.] At the close of the evidence and over the District’s objection, the circuit
court instructed the jury that SKA served as the District’s agent. The court also
instructed the jury regarding the District’s statutory emergency bidding procedures.
The jury returned a verdict in favor of Excel, and the District unsuccessfully moved
for judgment notwithstanding the verdict or in the alternative, a new trial. The
District appeals. We affirm.
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Facts and Procedural History
[¶4.] The District is a public entity incorporated under the laws of the State
of South Dakota. In 2012, the District decided to install a wastewater collection
system (the Project) for residents near Chester, South Dakota, to replace individual
septic tanks for approximately 200 homes and cabins located around Brant Lake.
This low-pressure system was designed to take waste from each residence by a
gravity sewer pipe to an individual grinder pump to process the waste into slurry
for piping to a main line.
[¶5.] The Project required installation of two main-line branches
surrounding the Lake. The branches were designed to join into a single line on the
west side of the Lake, which would then drain into a sewage lagoon. To avoid
disturbing the ground surface, the plans called for most of the piping to be installed
using “directional boring” rather than open trenching. The District employed SKA
to engineer the Project and awarded Excel, the lowest bidder, the installation
contract. Granite issued a performance bond as a surety for Excel’s work. Reed
Olson, owner of Excel, and his wife Melissa Fischer-Olson, executed a general
agreement of indemnity, in which they agreed to hold Granite harmless for any loss
as a result of the bond.
[¶6.] Excel’s contract began on May 30, 2012. The parties agreed to a
December 30, 2012 deadline for substantial completion and a May 30, 2013 deadline
for final completion. The contract included a liquidated damages clause, which, by
its terms, attempted to anticipate the District’s damages if Excel delayed
completion of the Project beyond the agreed-upon dates. Further, the contract
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provided that in the event of a delay, the District could hire a third party to
complete the Project and recover the cost of completion from Excel.
[¶7.] The District issued a notice to proceed with construction on June 25,
2012. Delays in the construction schedule occurred almost immediately due to
difficult terrain and the late arrival of critical supplies. Excel’s president, Reed
Olson, sent a letter to the District expressing concerns about Excel’s ability to meet
the December 30, 2012 substantial completion date. He requested an extension
until May 31, 2013, with remaining cleanup to be completed in June. The District
denied this request. As construction continued, the parties disagreed regarding
change orders, payment schedules, Excel’s duty to supply troubleshooting services,
and the Project’s price. For example, changes in the construction plans—
specifically, the need to use open trenching around the residences in an area called
Spawn’s Addition rather than proceeding with directional boring—contributed to
the increased costs and delay. Issues also arose regarding selection of the proper
hydraulic pressure testing formula for HDPE 1 pressure sewer pipelines after
installation to ensure its proper performance.
[¶8.] As the project moved towards completion, Excel sent a letter to the
District requesting that it send a punch list of uncompleted contract items. 2 The
District did not send the list. In early January 2014, dozens of grinder stations
1. HDPE pipe is a flexible plastic pipe often used to transfer fluids or gas.
2. A punch list is an itemized list of final work or repairs necessary to complete a job. City of Bridgewater v. Morris, Inc., 1999 S.D. 64, ¶ 2, 594 N.W.2d 712, 714.
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began freezing. Excel, the District, and the grinder pump supplier disputed which
business was responsible for troubleshooting services. Although the District
allowed Excel to continue working on the Project until January 20, 2014, it
ultimately gave Excel notice that it was terminating the contract because Excel had
failed to meet the Project deadlines and requirements. Five days later, the District
hired a replacement contractor to troubleshoot, inspect, and repair malfunctioning
grinder pumps.
[¶9.] On January 19, 2014, Excel sued the District for breach of contract in
Minnehaha County, alleging the District violated the express terms of the
agreement and the implied duty of good faith and fair dealing. The complaint also
named the supplier and manufacturer of the grinder pumps as defendants. In a
separate action commenced in Lake County on February 20, 2014, the District
brought suit against Excel and Granite for breach of contract. It requested, in part,
liquidated and compensatory damages related to the completion of the contract. In
response, Granite filed a third-party complaint against Reed Olson and Melissa D.
Fischer-Olson seeking indemnification if the District succeeded in its claims.
[¶10.] Excel’s Minnehaha County action was transferred to Lake County, and
the cases were consolidated. On March 5, 2014, the District declared the unfinished
Project an emergency on the basis that it posed a threat to public health. By doing
so, it was permitted to bypass the standard bidding procedures required of a public
entity. On March 20, 2014, the District instructed its engineer, SKA, to obtain
proposals from replacement contractors by April 2, 2014. However, when the
District held its April 2, 2014 meeting, SKA was still soliciting bids. Five weeks
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later, on May 7, the District had one bidder and expected another by the end of the
week. On May 22, SKA informed the District that two companies had submitted
bids for the Project. That same day, the District hired Dakota Road Builders (DRB),
the lowest bidder, to finish the Project. The new sewage system was not completed
until fall 2015. In May 2014, the District notified Granite that it was making a
claim against Excel’s bond. In that letter, the District contended that Excel failed
to supply skilled workers and equipment during performance of the Project, failed to
timely pay subcontractors, and disregarded SKA’s authority.
[¶11.] The pre-trial proceedings involved extensive discovery, including
several motion hearings. 3 In April 2016, the District filed a third-party complaint
against SKA seeking indemnification and contribution for any liability due and
owing as a result of Excel’s suit. Excel moved for partial summary judgment
seeking dismissal of the District’s claim for liquidated damages, which the court
granted, concluding that the District elected compensatory damages when it
terminated Excel’s contract.
[¶12.] As trial approached, the court set a filing deadline for further
dispositive motions. SKA moved for summary judgment, seeking dismissal of the
District’s third-party complaint because neither the District nor Excel could prove
SKA’s conduct caused delays in the Project’s completion. SKA argued that Excel’s
expert witness, Michael Carr, could not state that trenching delayed the completion
of the Project. Moreover, SKA contended that Excel failed to produce documents
3. As the case progressed, the pump manufacturer and the supplier of the grinder pumps were dismissed from the lawsuit as a result of a settlement.
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supporting its request for an increase in compensation for trenching. Further, SKA
alleged it promptly modified the pipe testing standard upon Excel’s written
request, 4 and Excel did not produce evidence of damages related to the pipe testing
standards.
[¶13.] Rather than oppose the motion, the District admitted nearly all of
SKA’s material facts. According to the District, the facts asserted by SKA in its
affidavits were consistent with the District’s theory of the case against Excel.
However, the District argued that if summary judgment was granted to SKA, Excel
should be precluded from seeking damages against the District for the undisputed
material facts referenced in the motion—namely, that the delays caused by the
hydraulic pressure testing requirements and trenching in Spawn’s Addition
contributed to Excel’s damages. This was because, in the District’s view, an order
granting summary judgment to SKA necessarily deemed SKA’s facts undisputed.
Although Excel was not a party to the motion, it filed a brief resisting SKA’s motion,
arguing that there were genuine issues of material fact.
[¶14.] The circuit court issued an order granting SKA summary judgment
and dismissing SKA from the lawsuit on December 12, 2017, primarily because the
District did not oppose it. The District responded by moving for summary judgment
against Excel on December 22, 2017, relying on the court’s conclusion that the
material facts asserted by SKA were undisputed. At a January 8, 2018 hearing, the
4. At trial, Excel ultimately recovered $37,200 in damages relating to the incorrect pressure testing formula on the theory that the formula generated “false positives” on dozens of occasions, causing Excel to chase leaks that did not exist.
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court denied the District’s request for summary judgment. It reasoned that Excel
was not bound by the facts asserted in support of SKA’s summary judgment motion
against the District because that motion resolved only the third-party complaint
(between the District and SKA) and not the original complaint (between Excel and
the District). Additionally, the court found the motion untimely because the
District did not move for summary judgment until nearly two months after the
court’s pre-trial motion deadline.
[¶15.] A nine-day jury trial began in January 2018. During trial, Excel and
Granite introduced evidence of delays associated with the hydraulic pressure
testing and trenching in Spawn’s Addition. Excel and Granite also presented
evidence regarding the District’s competitive bidding procedures to support its claim
that the District failed to mitigate its damages by not timely hiring a replacement
contractor.
[¶16.] At the close of the evidence, the circuit court instructed the jury that
SKA acted as the District’s agent. Additionally, because the District hired a
contractor to complete the project without submitting the matter for public bids, the
court also gave an instruction on the public emergency exception to the standard
bidding procedures ordinarily required of a public entity. The court deemed the
instruction relevant to the District’s duty to mitigate its damages.
[¶17.] The jury rejected the District’s claim for damages in the amount of
$794,763.56 and instead returned a verdict of $1,569,691.81 in favor of Excel. This
sum included $285,921.81 for retainage or compensation for completed work,
$483,770 for other payments due under the contract, and $800,000 for lost profits.
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[¶18.] The District requested a new trial or in the alternative, judgment as a
matter of law. Among other assertions of error, the District argued that the circuit
court erred in instructing the jury regarding agency and emergency bidding
practices, which prejudiced the District. It also challenged the verdict as excessive
and contrary to law. The circuit court denied the motion.
[¶19.] The District appeals, raising several issues for our review that we
restate as follows:
I. Whether the circuit court erred by dismissing the District’s claim for liquidated damages.
II. Whether the circuit court’s dismissal of the District’s third-party complaint required the court to dismiss Excel’s claims against the District.
III. Whether the circuit court erred by instructing the jury that SKA was the District’s agent.
IV. Whether the circuit court erred by allowing testimony regarding the District’s emergency bidding procedures and instructing the jury on the same.
V. Whether the evidence was sufficient to support the jury’s damage award.
The South Dakota Conservancy District (SDCD) and Dakota Homestead Title
Insurance Company (DH) jointly filed an amicus curiae brief supporting the
District’s position. 5
5. SDCD finances sewer and water projects for many political subdivisions throughout the state and financed this Project for the District, and DH financed the remaining costs of completion after the District terminated Excel from the Project.
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Analysis and Decision
I. Whether the circuit court erred by dismissing the District’s claim for liquidated damages.
[¶20.] Even though the District chose to terminate Excel’s contract, a decision
it recognizes forecloses its pursuit of liquidated damages under our current law, the
District contends that it was still entitled to pursue both liquidated and
compensatory damages because the terms of its contract provide for both. 6 The
circuit court dismissed the District’s claim for liquidated damages because it
considered itself bound by our holding in Subsurfco, Inc. v. B-Y Water Dist., 337
N.W.2d 448 (S.D. 1983).
[¶21.] In Subsurfco, a jury returned a verdict that awarded both actual and
liquidated damages for breach of contract. Id. at 457–58. We reversed on appeal,
explaining that when facing injury for breach of contract, a party can “protect itself
under the contract in two different ways.” Id. at 458. These options include
“tak[ing] over the work and complet[ing] it, charging any extra cost and expense to
the contractors” or “wait[ing] until the job should be completed [and] then
collect[ing] as liquidated damages the per diem amount agreed upon.” Id. We
explained that these remedies are distinct; therefore, “[w]hen an owner terminates
a contract, the cost of completion is recoverable; the liquidated damages are not
recoverable.” Id. at 457.
6. The District’s contract with Excel contained a provision for liquidated damages, requiring Excel to pay the District $1,450 per day for failing to meet the Project’s deadlines. Under this provision, the District argued Excel owed it $559,700. If the District terminated Excel’s services, the contract also provided that the District could recover the cost of completing the contract without affecting any other right the District had against Excel.
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[¶22.] The District requests that we relax our holding in Subsurfco to allow
an injured party to pursue liquidated damages even when it chooses to terminate a
contract. 7 For support, it relies on case law emerging in other jurisdictions that
allows owners to sue contractors for liquidated damages “for a reasonable time after
abandonment by the contractor or termination by the owner.” Weitz Co. v.
MacKenzie House, LLC, 665 F.3d 970, 977 (8th Cir. 2012) (applying Missouri Law).
See also 24 Williston on Contracts § 65:20 (4th ed. 2019) (“[T]he majority now
construe [liquidated damages clauses] as applying . . . not only to the period of time
during which the performance of the contractor is delayed prior to abandonment,
but to whatever period is required to complete the work.”).
[¶23.] Additionally, the District contends liquidated damages are proper
when, as in the present case, the contract in dispute does not limit the type of
damages available. 8 If allowed to pursue liquidated damages, the District submits
that it will not recover twice for the same injury because “actual damages related to
the cost of completion are separate and distinct from liquidated damages intended
to compensate for injury resulting from delay.” A. Miner Contracting, Inc. v. Toho–
7. The District, in analyzing the cases cited in Subsurfco, argues that United States v. American Surety Co., 322 U.S. 96, 98 n.3, 64 S. Ct. 866, 868 n.3, 88 L. Ed. 1158 (1944) does not stand for the general proposition announced by Subsurfco. The District also questions our reliance on United States v. Maryland Casualty Co., 25 F. Supp. 778, 780 (D.Me. 1938) because it relied on early Twentieth Century cases that do not reflect the changing trend with regard to liquidated damages clauses.
8. Section 17.2 of the contract provides that if Excel violates the contract, the District, “without prejudice to any other right or remedy, [could] terminate the services of CONTRACTOR . . . and finish the Work by whatever method he may deem expedient . . . .” (Emphasis added.)
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Tolani Cty. Improvement Dist., 311 P.3d 1062, 1071 (Ariz. Ct. App. 2013). Even if
the damages are not distinct, the District argues that it is only requesting the right
to elect its remedy at trial.
[¶24.] Given the situation presented here, however, we need not revisit
Subsurfco. After a nine-day trial, the jury rejected the District’s breach of contract
claim in its entirety. It found that Excel was entitled to contract damages in the
amount of $1,569,691.81, and after calculation of prejudgment interest, a total
judgment of $2,026,483.39. In light of the jury’s rejection of the District’s claims,
the District would not have recovered liquidated damages from Excel even if our
law permitted it. The circuit court did not err by dismissing the District’s claim for
liquidated damages.
II. Whether the circuit court’s dismissal of the District’s third-party complaint required the court to dismiss Excel’s claims against the District.
[¶25.] Next, the parties dispute whether the circuit court’s entry of summary
judgment dismissing the District’s third-party complaint against SKA had any
collateral impact on Excel’s claims as the first-party plaintiff. The circuit court gave
two reasons for refusing to extend the summary judgment order to claims alleged in
the original complaint. First, it concluded that the District made a tactical “decision
not to file for summary judgment” against Excel within the deadline for dispositive
motions, instead filing its motion after resolution of SKA’s motion. Second, the
court concluded that, as a matter of law, third-party motions did not impact claims
asserted in the original complaint.
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[¶26.] On appeal, the District concedes that it failed to file a motion for
summary judgment against Excel by the deadline for dispositive motions.
Nevertheless, the District argues it timely requested summary judgment on Excel’s
claims because the District asked for summary judgment in a brief it filed in
response to SKA’s summary judgment motion. The District further contends its
motion was timely because it made an oral request for summary judgment against
Excel during SKA’s summary judgment motion hearing and was informed by the
court that it would defer judgment because the issue was not yet ripe. Finally, the
District argues that in all fairness, a court should be permitted to enforce summary
judgment against all parties whether directly involved in the motion or not. To
conclude otherwise, it claims, would mean it could not oppose SKA’s motion without
admitting liability to Excel.
[¶27.] For support, the District urges us to apply the logic of Precision
Erecting, Inc. v. M & I Marshall & Ilsley Bank, G.A.P., Inc., a decision from the
Wisconsin Court of Appeals. 592 N.W.2d 5 (Wis. Ct. App. 1998). In that case, the
court held that when a party does not defend against a summary judgment motion,
if fundamentally fair, a court is permitted to enforce the judgment against all
parties, including those not directly involved with the motion. Id. at 12. The court
counseled that in multi-party litigation, the parties must carefully examine their
exposure when any party moves for summary judgment regardless of whether the
motion is directed at them. See id.
[¶28.] Granite and Excel argue that adopting a rule that binds non-parties to
motions not directed at them would cause unnecessary resistance to summary
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judgment motions and encourage collusion and gamesmanship. Additionally, Excel
points to the plain language of our summary judgment rule (SDCL 15-6-56(c)) and
to rules governing judgments upon multiple claims or involving multiple parties
(SDCL 15-4-54(b)) for support.
[¶29.] We decline to apply the reasoning in Precision Erecting because the
language of our rules does not contemplate mandatory responses from parties not
named in motions. SDCL 15-6-56(b) states a party may move “for summary
judgment in his favor . . ..” (Emphasis added.) It contains no language expanding
the obligation to respond to all parties in the lawsuit whether they are named in the
motion or not. Excel did not assert a claim against SKA. Further, SKA only moved
for summary judgment under SDCL 15-6-56(b) on the third-party complaint filed
against it by the District. As such, Excel was not a party to the summary judgment
motion and was not bound by the rule to respond. To hold otherwise, as Granite
succinctly stated, would allow parties “to engage in friendly motion practice and
unilaterally exonerate themselves from liability without ever having to direct a
motion against the party claiming damages.” The circuit court properly refused to
extend its summary judgment ruling to Excel’s claims against the District.
[¶30.] Limiting enforcement of summary judgment motions to named parties
does not, as the District suggests, manifest an unfair result on this record. When
SKA moved for summary judgment against the District, the District could have
filed a motion for summary judgment against Excel. Instead, the District filed its
motion after the court’s ruling on SKA’s deadline for dispositive motions. The
circuit court determined that “[t]actically, [the District] made a decision” not to file
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a motion for summary judgment against Excel at the same time that SKA filed its
summary judgment motion. We conclude that the circuit court did not abuse its
discretion or err in declining to hear the motion. Jopling v. Jopling, 526 N.W.2d
712, 715 n.4 (S.D. 1995) (“Only when an abuse of discretion is shown is a court’s
scheduling decision reversed.”). 9
III. Whether the circuit court erred by instructing the jury that SKA was the District’s agent.
[¶31.] The District also argues that the circuit court erred by instructing the
jury, over the District’s objection, that SKA acted as the District’s agent. We review
a circuit court’s “decision to grant or deny a particular instruction under the abuse
of discretion standard.” Vetter v. Cam Wal Elec. Coop., Inc., 2006 S.D. 21, ¶ 10, 711
N.W.2d 612, 615. While a circuit court “has discretion in the wording and
arrangement of its jury instructions,” courts do not have “discretion to give
incorrect, misleading, conflicting, or confusing instructions . . . .” Papke v. Harbert,
2007 S.D. 87, ¶ 13, 738 N.W.2d 510, 515. “[T]o do so constitutes reversible error if it
is shown not only that the instructions were erroneous, but also that they were
prejudicial.” Vetter, 2006 S.D. 21, ¶ 10, 711 N.W.2d at 615.
[¶32.] An erroneous instruction is prejudicial if “in all probability [it]
produced some effect upon the jury’s verdict and [was] harmful to the substantial
rights of a party.” Id. Therefore, “[w]hether a jury was properly instructed overall
[is] a question of law reviewable de novo.” Id. Under this standard, “we construe
9. Based on our review of the record and the circuit court’s subsequent rulings, we think it doubtful that the circuit court would have granted a timely summary judgment motion in favor of the District.
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jury instructions as a whole to learn if they provided a full and correct statement of
the law.” Id.
[¶33.] On the issue of agency, the court instructed the jury as follows:
Instruction 18: Schmitz Kalda & Associates, Inc., and its employees were the agent of Brant Lake Sanitary District before, during and after the Phase 2 Contract. Therefore, any act or omission of Schmitz Kalda or its employees, at that time[,] is considered the act or omission of Brant Lake Sanitary District.
The District argues that the circuit court erred because SKA was referred to in the
underlying documents as an independent contractor rather than its agent. The
error, according to the District, prejudiced the District because the court’s
instruction wrongly interjected the tort principle of vicarious liability into this case.
The District highlights that during trial, Excel and Granite pointed to SKA’s
deficiencies during the performance of the contract rather than the District’s.
Because a party cannot be held vicariously liable for the acts of an independent
contractor, see Clausen v. Aberdeen Grain Inspection, Inc., 1999 S.D. 66, ¶ 15, 594
N.W.2d 718, 722, the District requests that we overturn the jury verdict.
[¶34.] We agree with the District that the circuit court’s agency instruction
related to principles of tort liability rather than the parties’ breach of contract
action. See Cameron v. Osler, 2019 S.D. 34, ¶ 6, 930 N.W.2d 661, 663 (“The ancient
doctrine of respondeat superior is well established as holding an employer or
principal liable for the employee’s or agent’s wrongful acts committed within the
scope of the employment or agency.”). More specifically, the phrase “act or
omission” in the instruction implicates negligence and vicarious liability claims
where none were pled in this case or presented to the jury.
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[¶35.] Despite any error in this instruction, however, the District has failed to
establish prejudice by showing that the agency instruction in all probability affected
the verdict. First, the circuit court did not instruct the jury on any substantive tort
claims against the District. The substantive instructions addressed only principles
of contract law. For example, Instructions 12, 15, 16, and 17 instruct on breach of
contract and the duty of good faith. Instruction 14 involved the contractor’s
obligation to perform under the contract despite unforeseen difficulties.
Instructions 19, 20, 21, and 25 address the correct measure of damages in breach of
contract actions. Instruction 22 iterated a party’s duty to mitigate contract
damages. These instructions properly informed the jury that Excel could only
recover against the District for a breach of the contract between the parties.
Importantly, the special verdict form did not include any award for tort damages,
but did include compensation for retainage, lost profits, and payments due and
owing under the contract. Despite the erroneous language in Instruction 18, the
instructions, when considered as a whole together with the special verdict form,
correctly stated the law on breach of contract.
[¶36.] Further, evidence was presented in this case that SKA was the
District’s contract representative with authority to act on its behalf. From the
outset of the litigation, the District acknowledged that its relationship with SKA
existed within the confines of contract. In its third-party complaint against SKA,
the District averred that SKA acted as the District’s representative and had
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authority to resolve questions arising under the contract. 10 It also asserted that “as
the engineer, SKA performed services on behalf of [the District], working with Excel
to complete the subject Project.” The District’s grant of actual authority to SKA is
reflected not only in the pleadings but also in the professional services contract with
SKA and its Project contract with Excel. In the District’s contract with SKA, it
directed SKA to “act as [the District’s] representative. All of the [District’s]
instructions to [Excel] will be issued through [SKA] who will have authority to act
on behalf of the [District] to the extent provided in the specifications unless
otherwise provided in writing.” 11 (Emphasis added.)
[¶37.] Based on our review of the special verdict form, the jury instructions,
and the record, the verdict awarding Excel contract damages was not attributable to
any tort claim against either the District or SKA, but was instead based on the
10. The District relies upon Glenn Construction Co. v. Bell Aerospace Services, Inc., a case limited to its facts, for the proposition that use of the word “representative” in the contract does not automatically create an agency relationship between SKA and the District. 785 F. Supp. 2d 1258 (M.D.Ala. 2011).
Glenn held that agency must be decided based on “the peculiar facts” of each case. Id. at 1290. This is in line with our current test. See Ehresmann v. Muth, 2008 S.D. 103, ¶ 16, 757 N.W.2d at 405 (“Whether an individual is an agent is ultimately a question of fact.”). The situation in Glenn, however, is distinguishable because it involved a summary judgment proceeding in which the court held that no reasonable jury could conclude the engineer acted as an agent. 785 F. Supp. 2d at 1289. Further, the question of agency was pertinent in Glenn because the case required deciding whether the owner was liable in tort for the acts of the engineer during the project. Id. at 1262
11. Additionally, Excel’s contract contained numerous provisions requiring Excel to engage with SKA as a representative of the District. In that contract, the District stated that SKA “shall act as [the District’s] representative during the contract period. [It] shall decide questions which may arise as to quality and acceptability of materials furnished and Work performed.”
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evidence of Excel’s damages arising from the District’s breach of contract. Excel
introduced evidence of the District’s contract obligations and SKA’s authority to act
on behalf of the District as its contract representative. The District’s duties
included providing Excel with adequate plans, access rights, extensions for delays
beyond its control, and timely payments. Moreover, the contract required the
District to proceed in good faith.
[¶38.] Throughout the nine-day trial, Excel introduced substantial evidence
that the District refused to comply with these obligations in a number of ways. For
example, the jury considered the District’s decision to systematically deny change
orders requested by Excel. Moreover, the jury considered evidence that once it
became apparent that open trenching was required in Spawn’s Addition, the
District failed to work with Excel and the affected landowners to assist in
identifying the appropriate locations of wooden stakes and grinder stations. Excel
also produced evidence that unanticipated route changes, additions to the requested
work beyond the original bid, and unexpected weather impeded timely completion of
the Project. Despite these setbacks, the jury heard the District admit, through the
testimony of its president, that it did not formally grant Excel a single adjustment
to the Project timeline. The jury considered this and other evidence regarding the
relationship and conduct of the parties and fashioned a verdict accordingly.
IV. Whether the circuit court erred by allowing testimony regarding the District’s emergency bidding procedures and instructing the jury on the same.
[¶39.] The District deemed the unfinished Project a public emergency and
hired Dakota Road Builders (DRB) to complete the project without submitting the
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contract for public bids. The nearly $500,000 contract the District negotiated with
DRB was a major component of the District’s damages claim against Excel.
[¶40.] The District asserts that the circuit court erred by allowing Excel and
Granite to present evidence on the District’s emergency bidding procedures and in
giving the jury an instruction regarding the same. 12 According to the District, the
reasonableness of the completion contract was not an issue at trial because Excel’s
expert admitted that the District received a fair contract price when it hired Dakota
Road Builders to finish the Project. Allowing evidence of a potential bidding
violation, in the District’s view, “provoke[d] the jury’s instinct to punish.”
[¶41.] Excel and Granite disagree, arguing the evidence was critical to
determining many of the issues between the parties, including the validity of the
termination of Excel’s contract and whether the District properly mitigated its
damages. Excel presented evidence that the District did not treat the matter as an
emergency because it waited two months to declare the emergency and four
additional months to hire a contractor who was given no completion deadlines.
And, in Excel’s view, DRB, rather than addressing any emergency, simply
completed the punch list Excel was never given. Alternatively, even if the
emergency bidding instruction was error, Excel and Granite argue the error was
harmless because the District has not shown the instruction or testimony had any
impact on the jury’s verdict.
12. The court gave Instruction 23, providing: “A purchasing agency may make or authorize others to make an emergency procurement without advertising the procurement if rentals are not practicable and there exists a threat to public health, welfare, or safety or for other urgent and compelling reasons.”
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[¶42.] “For evidence to be admitted at trial, it must first be found to be
relevant.” Supreme Pork, Inc. v. Master Blaster, Inc., 2009 S.D. 20, ¶ 30,
764 N.W.2d 474, 484. Once found to be relevant, it is admissible unless specifically
excluded. Id. In breach of contract cases, whether an injured party mitigated its
damages is relevant because “[g]enerally, damages are not recoverable for losses the
plaintiff could have reasonably avoided.” Boxa v. Vaughn, 2003 S.D. 154, ¶ 21,
674 N.W.2d 306, 313.
[¶43.] The District’s timeline and procedure in obtaining a replacement
contractor was directly relevant to its alleged damages due to the delay in
completing the Project. Allowing the jury to consider evidence that related to the
District’s duty to mitigate its damages and instructing the jury on the same was
within the purview of the circuit court. Further, other than vague assertions, the
District has failed to establish how it was prejudiced. See Vetter, 2006 S.D. 21, ¶ 10,
711 N.W.2d at 615. The circuit court did not abuse its discretion by allowing
introduction of evidence on the District’s emergency bidding procedures.
V. Whether the evidence was sufficient to support the jury’s damage award.
[¶44.] Finally, the District argues that the circuit court erred by denying its
alternative motions for a new trial or judgment notwithstanding the verdict on the
basis that the jury’s verdict was excessive, speculative, or contrary to law. Excel
sought, and the jury awarded, three types of damages: (1) cost of unpaid or
underpaid contract items; (2) retainage; and (3) lost profits.
[¶45.] “The ultimate purpose behind allowance of damages for breach of
contract is to place the injured party in the position he or she would have occupied if
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the contract had been performed . . . .” Stern Oil Co., Inc. v. Brown, 2018 S.D. 15, ¶
16, 908 N.W.2d 144, 151. Generally speaking, “[t]he amount of recovery may not
exceed the amount the plaintiff would have gained if the contract had been fully
performed.” Id. We accord a jury verdict significant deference and will overturn a
damages award only in “extreme cases.” Carpenter v. City of Belle Fourche, 2000
S.D. 55, ¶ 7, 609 N.W.2d 751, 756. Such cases occur when a verdict is shown to be
“excessive or inadequate . . . appearing to have been given under the influence of
passion or prejudice or due to [i]nsufficiency of the evidence to justify the verdict.”
ISG, Corp. v. PLE, Inc., 2018 S.D. 64, ¶ 26, 917 N.W.2d 23, 32. Testimony and
evidence are reviewed “in a light most favorable to the verdict . . ..” Maryott v. First
Nat. Bank of Eden, 2001 S.D. 43, ¶ 10, 624 N.W.2d 96, 101.
[¶46.] With respect to damages relating to unpaid or underpaid contract
items, the District argues Excel should not have recovered because the items were
not in the contract. Further, in the District’s view, Excel should not be allowed to
recover additional costs associated with trenching in Spawn’s Addition because
Excel should have known the conditions in that area would accumulate extra costs.
At trial, the jury considered these arguments and the testimony from Excel’s
president, Reed Olson.
[¶47.] Olson testified that the District owed Excel $483,770 for supplies and
labor costs. In support of this testimony, Excel introduced corresponding exhibits
including applications for payment, which the District rejected. For example, these
exhibits included requests for payment for such things as: a manhole; insulation; a
gravity sewer; lost time during pressure testing; quantities of 1.25-inch pipe and 3-
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inch pipe; and costs to dig an open trench in Spawn’s Addition. This evidence and
our review of the record supports the jury’s verdict awarding this amount.
[¶48.] The evidence further supports Excel’s damages for retainage. In fact,
the District’s certified accountant, Gary Ritzman, agreed there was no dispute that
the District owed Excel $285,921.81 for retainage.
[¶49.] Excel also sought consequential damages for lost profits claiming it
was unable to successfully procure future contracts because of its impaired bonding
status due to the District’s breach. A litigant’s ability to recover damages for lost
profits that are both direct and consequential to a contract is well settled and has
been recognized as a compensable form of damages for many years. See, e.g., Stern
Oil, 2018 S.D. 15, ¶ 17, 908 N.W.2d at 151. 13
[¶50.] To successfully recover contract damages, a litigant must first prove
“that damages were in fact caused by the breach.” McKie v. Huntley, 2000 S.D. 160,
¶ 18, 620 N.W.2d 599, 603. Additionally, to recover for lost profits the “[d]amages
must be reasonably foreseeable . . ..” Stern Oil, 2018 S.D. 15, ¶ 17, 908 N.W.2d at
151. In other words, they must have been “reasonably within the contemplation of
the parties at the time of making the contract.” Id. This requirement is an
objective one—meaning that at the time the parties entered into the contract, they
knew or should have known that lost profit damages would probably result from a
13. See also ISG, Corp., 2018 S.D. 64, ¶¶ 25–26, 917 N.W.2d 23, 31–32; Jorgensen Farms, Inc., v. Country Pride Corp., 2012 S.D. 78, ¶ 27, 824 N.W.2d 410, 419; Lamar Advert. of S.D., Inc. v. Heavy Constructors, Inc., 2008 S.D. 10, ¶ 15, 745 N.W.2d 371, 376; Diamond Surface, Inc. v. State Cement Plant Comm’n, 1998 S.D. 97, ¶ 25, 583 N.W.2d 155, 161; Drier v. Perfection, Inc., 259 N.W.2d 496, 506 (S.D. 1977).
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breach of the contract. Denny Const., Inc. v. City and Cty. of Denver ex rel. Bd. of
Water Comm’rs, 199 P.3d 742, 750–51 (Colo. 2009).
[¶51.] Further, damages must not be speculative; that is, the damages must
be reasonably certain. Stern Oil, 2018 S.D. 15, ¶ 17, 908 N.W.2d at 151. To satisfy
this requirement, “a plaintiff must establish a reasonable relationship between the
method used to calculate damages and the amount claimed.” Id. “Lost
profits . . . due to impaired bonding capacity are not speculative as a matter of law.”
Denny Const., Inc. 199 P.3d at 743. Rather, like all claims for damages, they must
be proven by the evidence.
[¶52.] The District focuses its argument on its contention that “Excel failed to
meet its burden of proof” because the lost profits it alleges are “too remote,
speculative, and uncertain.” In support of this argument, the District challenges
the testimony of Excel’s certified public accountant (CPA), Nina Braun, arguing
that she lacked adequate data to forecast Excel’s lost profits. In the District’s view,
the most Excel was entitled to recover is the full value of its contract with the
District ($2,701,531.68), minus any payments Excel received—less the cost of
completing the Project.
[¶53.] Although a calculation for lost profits from future public improvement
contracts might be difficult to ascertain under certain circumstances, this does not
mean they are always unrecoverable. Courts in other jurisdictions have affirmed
awards for lost profits due to impaired bonding capacity if the contractors proved
their damage claims with reasonable certainty. Laas v. Mont. State Highway
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Comm’n, 483 P.2d 699, 704 [pincite] (Mont. 1971); Denny Constr. Inc., 199 P.3d at
743. 14
[¶54.] At trial, Excel and Granite introduced detailed evidence demonstrating
that the District’s breach of contract significantly damaged Excel’s bonding
capacity. Travis Gusso, owner of Gusso Surety Bonds, who specializes in placing
bonds for public work contractors, testified that he had written bonds for Excel for
many years. In Gusso’s opinion, the District’s pending bond claim impaired Excel’s
business because it meant Excel could only procure “quick bonds” ranging from
$250,000–$350,000 in aggregate coverage. This limited capacity precluded Excel
from bidding on larger projects or working on several mid-range projects
simultaneously.
[¶55.] To prove its history of bids on public improvement contracts before and
after the alleged breach, Excel introduced its bid log from 2003 to 2016. It also
introduced its contract log for the same period, which reflected the contracts that
Excel was actually awarded. This contract bid and award history revealed that
Excel had successfully bid on an increasing number of contracts in the years leading
up to the Project. The logs for 2008 reveal that Excel submitted bids on twenty-nine
14. Although lost profit awards connected to impaired bonding capacity are relatively infrequent, this is not because they are legally impermissible, but rather because it is often difficult for litigants to prove these claims with reasonable certainty. Courts that have considered the question and denied recovery have done so, at least in part, because the lost profits stem from “unidentified contracts.” See Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 102 P.3d 257, 262 (Cal. 2004). This is not the case here. As outlined herein, Excel presented significant evidence in the contract bid and award logs showing its earning capacity before and after the Project until the date of trial.
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projects and received five. The combined value of the five contracts was
$795,966.68. In 2009, Excel bid on thirty-two contracts and was awarded four,
worth a total of $817,594.10. Of the twenty-nine contracts Excel bid on in 2010, it
received three totaling $901,208.89. In 2011, Excel was awarded four contracts
after bidding on nineteen, with a total value of $843,471.70. Similarly, in 2012,
Excel bid on thirteen contracts and was awarded this Project worth $2,701,531.68.
This evidence established that, prior to the lawsuit, Excel averaged approximately
$800,000 in contract awards annually.
[¶56.] However, after the District breached its contract with Excel and filed a
claim against Excel’s bond in 2014, Excel’s business suffered significant losses. In
2014, Excel bid on five contracts ranging in amount from $150,000 to $300,000. It
received two worth a total of $689,965.82. Then, in 2015, it bid on twenty projects
ranging in value between $140,000 and $500,000. It received one contract worth
$300,979.39. The next year, Excel submitted eleven bids for contracts valued
between $100,000 and $500,000. Once again, it was awarded one contract worth
just $222,524.72.
[¶57.] In addition to the bond and contract logs, Excel’s and Granite’s
damages expert, Braun, testified to the lost profit damages Excel suffered. As a
financial expert familiar with Excel’s tax returns from 2009 to 2014 and financial
statements prepared by another CPA for 2007 and 2008, Braun was qualified to
testify as to Excel’s profit margin. Relying on Excel’s prior earning capacity
between 2007 and 2014, Braun estimated that the most conservative value of
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Excel’s lost profits from the date of the breach until trial was $683,178, while the
median range was $1,285,394, with the most aggressive projection at $2,545,219. 15
[¶58.] Based on our review of the record, the jury did not award lost profits to
Excel well into the future despite the District’s arguments to the contrary. After
considering Excel’s tax returns, Braun’s testimony, and an examination of over a
decade of bid and contract logs, the jury valued Excel’s losses at $800,000 from the
date of breach until the date of trial. The evidence presented was sufficient to
“establish a reasonable relationship between the method used to calculate damages
and the amount claimed.” Stern Oil Co., 2018 S.D. 15, ¶ 17, 908 N.W.2d at 151.
While the District was critical of Braun’s opinions and the basis for her calculations,
“[t]he credibility of witnesses and the evidentiary value of their testimony falls
solely within the province of the jury.” In re S. D. Microsoft Antitrust Litig., 2003
S.D. 19, ¶ 30, 657 N.W.2d 668, 679. Moreover, the damages awarded by the jury
were not excessive as they were on the lower end of the lost profit scenarios
presented by Excel’s expert.
[¶59.] We are mindful of the public policy concerns raised by amicus curiae
with respect to Excel’s damages award. Specifically, amicus contends that because
governmental subdivisions have limited resources to finance public works projects,
this verdict will affect underwriting practices in South Dakota. However, the
District made no attempt to contractually limit Excel’s claims for lost profits.
Moreover, we have permitted awards for lost profits against public entities for
15. Braun examined Excel’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) to calculate true profitability.
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decades if the damages were reasonably certain and proven by the evidence. Arcon
Constr. Co. v. S.D. Cement Plant, 349 N.W.2d 407, 414–15 (S.D. 1984). While this
may raise legitimate public policy issues, we believe such concerns should be
directed to the Legislature. Based on our review of the record, and under the
particular circumstances of this case, the evidence was sufficient to sustain the
jury’s verdict. The circuit court did not err by denying the District’s motion for
judgment notwithstanding the verdict or in the alternative, for a new trial.
Conclusion
[¶60.] We affirm on all grounds. We need not address the District’s claim
that the circuit court erred by granting Excel’s motion for summary judgment on
the District’s liquidated damages claim because the jury ruled for Excel. We affirm
the circuit court’s denial of the District’s motion for summary judgment against
Excel and decline the District’s invitation to adopt the rule endorsed by the
Wisconsin Court of Appeals in Precision Erecting. Further, the circuit court did not
err by instructing the jury regarding the District’s emergency bidding procedures.
Although the circuit court erred by giving the agency instruction, the District has
failed to establish reversible error on this basis. Finally, the jury verdict was not
excessive, speculative, or contrary to law. Ample evidence exists within the trial
record to support the jury’s award of contract damages.
[¶61.] GILBERTSON, Chief Justice, and JENSEN, Justice, and CLARK,
Circuit Court Judge, and KONENKAMP, Retired Justice, concur.
[¶62.] CLARK, Circuit Court Judge, sitting for SALTER, Justice,
disqualified.
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