H & H Glass, Inc. v. Empire Bldg. Co., L.L.C.

2016 Ohio 3029

• Court: Ohio Court of Appeals
• Decided: May 18, 2016
• Docket: C-150059, C-150227
• Status: Published

Opinion

[Cite as H & H Glass, Inc. v. Empire Bldg. Co., L.L.C., 2016-Ohio-3029.] IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

H&H GLASS, INC., : APPEAL NOS. C-150059 C-150227 Plaintiff-Appellee/Cross- : TRIAL NO. A-1307118 Appellant, : vs. O P I N I O N. : EMPIRE BUILDING CO., LLC., : and : TRAVELERS INSURANCE CO., : Defendants-Appellants/Cross- Appellees. :

Civil Appeals From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: May 18, 2016

Benjamin, Yocum, & Heather, LLC, and Thomas R. Yocum, for Plaintiff- Appellee/Cross-Appellant,

Lindhorst & Dreidame, Barry F. Fagel and Matthew C. Curran, for Defendants- Appellants/Cross-Appellees.

Please note: this case has been removed from the accelerated calendar. OHIO FIRST DISTRICT COURT OF APPEALS

S TAUTBERG , Judge.

{¶1} This case involves a contract dispute. Plaintiff-appellee/cross-appellant

H&H Glass, Inc., (“H&H”) entered into a contract with defendant-appellant/cross-

appellee Empire Building Co. (“Empire”) to perform construction work on Sayler Park

School, a Cincinnati Public Schools building. Empire was the general contractor on the

project. H&H was a subcontractor that contracted with Empire to supply materials and

services related to the installation of aluminum window systems, as well as window

and door frames. Defendant-appellant/cross-appellee Travelers Insurance Co., a.k.a.

Travelers Casualty & Surety Co. of America, (“Travelers”) was the surety for Empire.

{¶2} During the course of its work on the project, H&H submitted monthly

pay applications to Empire. Empire, in turn, submitted those applications to Turner

Construction, the project manager, for payment. From the start of the project,

disputes arose between H&H and Empire regarding whether H&H had properly billed

for work performed, the timeliness of payments from Empire to H&H, and retainage

amounts withheld by Empire. These differences ultimately culminated in H&H

walking off of the job. As a result, Empire had to hire another contractor, Andy’s

Glass, to complete H&H’s work on the project.

{¶3} H&H later sued Empire for breach of contract, asserting that Empire

had failed to pay H&H $27,084.80. Included in this amount was $11,095.01 for

custom-made “storefront materials” that H&H had had in its possession at the time

that it quit working on the project. H&H also claimed that Travelers had breached its

obligation as a surety when, after H&H had demanded payment under the terms of its

contract with Empire, Travelers had refused to pay. H&H contended that Empire and

Travelers were jointly liable for its damages. H&H also asserted a prompt-pay claim

under R.C. 4113.61, which included a request for attorney fees.

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{¶4} Empire counterclaimed. It asserted, in part, that H&H had breached its

contract with Empire when it walked off of the job before completing it, and that

Empire had suffered $25,000 in damages as a result.

{¶5} Following a bench trial, the trial court determined that Empire had

materially breached its contract with H&H by failing to pay in accordance with the

contract, and that, following the breach, H&H had been excused from further

performance. The court awarded H&H $27,084.80. This amount included the cost of

the custom-made storefront materials. Neither side was awarded attorney fees. The

court further held that the Prompt Pay Act did not apply. Empire and Travelers

appealed, and H&H cross-appealed.

Empire and Travelers’ Appeal

{¶6} In Empire and Travelers’ first assignment of error, they contend that the

trial court erred when it held that Empire’s breach was “material,” thereby excusing

H&H from further performance under the contract.

{¶7} A breach of contract exits where, without legal justification, a party fails

to perform any promise that forms a whole or part of a contract. Natl. City Bank of

Cleveland v. Erskine & Sons, 158 Ohio St. 450, 110 N.E.2d 598 (1953), paragraph one

of the syllabus. However, not all breaches are created equal. A failure to perform a

promise that is nominal, trifling, technical, or slight does not excuse performance

under the contract by the nonbreaching party. Kichler’s, Inc. v. Persinger, 24 Ohio

App.2d 124, 128, 265 N.E.2d 319 (1st Dist.1970). In other words, “[a] breach of a

portion of the terms of a contract does not discharge the obligations of the parties to

the contract, unless performance of those terms is essential to the purpose of the

agreement.” Software Clearing House, Inc. v. Intrak, Inc., 66 Ohio App.3d 163, 170,

3 OHIO FIRST DISTRICT COURT OF APPEALS

538 N.E.2d 1056 (1st Dist.1990); see Thomas D. Reynolds & Assoc., Inc. v. Feeks, 1st

Dist. Hamilton No. C-890695, 1991 Ohio App. LEXIS 451, *4-5 (Feb. 6, 1991).

{¶8} The determination of whether a party’s failure was “essential to the

purpose” of the agreement—meaning whether a breach was “material”—is a question

of fact. O’Brien v. Ohio State Univ., 10th Dist. Franklin No. 06AP-946, 2007-Ohio-

4833, ¶ 11. It requires “an examination of the parties’ injuries, whether and how much

the injured parties would or could have been compensated, and whether the parties

acted in good faith.” Id. Here, Empire claims that the trial court’s decision finding that

its breach was material was against the manifest weight of the evidence. It was not.

{¶9} The contract between Empire and H&H allowed Empire to withhold ten

percent of payments, “unless specific provisions to the contrary are indicated in the

Contract Documents.” Indeed, one such contract document was the agreement

between the owner and the general contractor, which did contain different retainage

procedures. That agreement specified a retainage of eight percent of labor costs billed

by H&H until 50 percent of the project was completed. After 50 percent of the project

had been completed, the contract did not allow for any retainage for labor. The

contract provided different retainage rates for materials, depending on whether the

materials had been installed. Installed materials were not subject to any retainage.

{¶10} During the course of its work on the project, H&H submitted seven pay

applications to Empire. H&H experienced payment problems from the start. Empire

consistently, and over H&H’s objection, withheld more retainage than was allowed by

contract on H&H’s labor costs. The evidence presented at trial established that the

maximum amount of retainage that Empire should have withheld on labor was $2,120.

Empire withheld $9,696.80. At trial, Empire president Joe Haehnle admitted that it

paid H&H less on its labor costs than what was due under the contract.

4 OHIO FIRST DISTRICT COURT OF APPEALS

{¶11} In addition to failing to pay H&H’s labor costs as required, H&H

submitted evidence that that Empire had not paid any of its $8,695.30 June pay

application by the end of July when H&H walked off of the job.

{¶12} Based on the record before us, we hold that the trial court’s decision that

Empire’s breach was material was not against the manifest weight of the evidence. See

Eastley v. Volkman, 132 Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517. Over the

course of six pay applications, Empire had failed to pay approximately $7,500 in labor

costs due under the contract. And at the time that H&H had walked off the job, there

was another pay application for $8,695.30 pending with Empire. Wrongfully and

consistently withholding payment of labor costs can fairly be characterized as a breach

going to the “essence” of the parties’ agreement. Ernst v. Ohio Dept. of Adm. Serv., 69

Ohio App.3d 330, 337, 590 N.E.2d 812 (10th Dist.1990); Olympic Painting and

Sheeting Co. v. Danbourne Corp., 7th Dist. Mahoning No. 79 C.A. 69, 1980 Ohio App.

LEXIS 14002, *8 (May 5, 1980). Empire and Travelers’ first assignment of error is

overruled.

{¶13} In their second assignment of error, Empire and Travelers claim that

Empire was entitled to a set-off in damages because it had to pay another contractor to

finish the work H&H did not. In their fourth assignment of error, they raise a related

argument that Empire should have been allowed to apply the $9,696.80 retainage due

to H&H towards paying Andy’s Glass.

{¶14} The arguments in support of these assignments of error are based on

provisions in Empire’s contract with H&H. But H&H was excused from further

performance under the contract due to Empire's material breach. Empire was

therefore not entitled to take advantage of the contractual provisions providing for set-

off of amounts due to H&H’s failure to complete the project. See Danbourne Corp. at

5 OHIO FIRST DISTRICT COURT OF APPEALS

*9; see generally Garofalo v. Chicago Title Ins. Co., 104 Ohio App.3d 95, 108, 661

N.E.2d 218 (8th Dist.1995). The second and fourth assignments of error are overruled.

{¶15} In their third assignment of error, Empire and Travelers claim that the

trial court erred when it found that Empire had refused to purchase custom-made

“storefront” materials from H&H. Empire and Travelers claim that this finding was

against the manifest weight of the evidence, and therefore that the damage award

should be reduced by the cost of these materials.

{¶16} At trial, Katelyn Hamilton of H&H explained that the storefront

materials at issue were custom-made for the school project and that they did not have

general utility. Hamilton testified that H&H had the storefront materials in its

possession and was willing to sell them to Empire. Empire presented contrary

evidence that H&H was not willing to sell these materials to it. In reviewing the record,

we find no indication that, in affording more weight to H&H’s version of events, the

trial court so lost its way as to create a manifest miscarriage of justice warranting a

new trial. See State v. Martin, 20 Ohio App.3d 172, 175, 485 N.E.2d 717 (1st

Dist.1983). Empire and Travelers’ third assignment of error is therefore overruled.

H&H’s Appeal

{¶17} In H&H’s sole assignment of error, it argues that the trial court erred

when it failed to award H&H prejudgment interest and attorney fees.

{¶18} H&H first argues that it was entitled to an award of 18 percent

prejudgment interest under Ohio’s Prompt Pay Act, R.C. 4113.61. In pertinent part,

R.C. 4113.61(A)(1)(a) provides that a contractor, within ten calendar days after receipt

of payment from the owner or construction manager for improvements to property,

shall pay to the subcontractor “an amount that is equal to the percentage of completion

of the subcontractor’s contract allowed by the owner for the amount of labor or work

6 OHIO FIRST DISTRICT COURT OF APPEALS

performed.” Failure to abide by this provision entitles a subcontractor to prejudgment

interest at a rate of 18 percent per annum. R.C. 4113.61(A). In addition to an 18 percent

interest award, R.C. 4113.61(B)(1) allows the court to award attorney fees to a party

that prevails on a prompt-pay claim.

{¶19} H&H argues that its pay application 6 should have been paid by July 26,

2012, because Tuner had allegedly paid Empire for this bill on July 16, 2012. H&H

also claims that pay application 7, which requested $11,465.20, should have been paid

sometime in 2013 when Empire had been paid in full for the entire project.

{¶20} H&H’s argument regarding the Prompt Pay Act ignores the trial court’s

finding that, due to the nature of the dispute between the parties, the Prompt Pay Act

did not apply. See R.C. 4113.61(A)(1); Masiongale Elec.-Mechanical, Inc. v. Constr.

One, Inc., 102 Ohio St.3d 1, 2004-Ohio-1748, 806 N.E.2d 148 (prejudgment interest is

not warranted under R.C. 4113.61 where the contractor, in good faith, withholds

amounts over disputed performance of labor or furnishing of materials); see also Gary

Moderalli Excavating, Inc. v. Trimat Constr., Inc., 5th Dist. Tuscarawas Nos. 2012 AP

03 0022 and 2012 AP 03 0023, 2013-Ohio-1701, ¶ 49 (prejudgment interest under

R.C.4113.61 not warranted when there is a disputed claim). H&H argues its dispute

with Empire involved only a disagreement regarding the amount of retainage, and that

therefore the Prompt Pay Act did apply. The record demonstrates, however, that

Empire’s disputes concerning payment on H&H’s pay applications included

disagreements over whether H&H had completed the work billed for, disputes over the

storefront materials, and withholding of monies to cover the costs to hire another

subcontractor to complete the work H&H had not. H&H’s ultimate success on its

breach-of-contract action did not preclude a finding of a good-faith dispute, rendering

the Prompt Pay Act inapplicable. And upon a review of the record, we hold that this

7 OHIO FIRST DISTRICT COURT OF APPEALS

finding is not against the weight or the sufficiency of the evidence. See Eastley, 132

Ohio St.3d 328, 2012-Ohio-2179, 972 N.E.2d 517. This argument therefore has no

merit.

{¶21} H&H also contends that the trial court should have awarded it attorney

fees under the Prompt Pay Act. However, since the Prompt Pay Act does not apply in

this case, H&H was not entitled to attorney fees pursuant to that act.

{¶22} H&H’s next argues that even if the Prompt Pay Act does not apply, it is

nevertheless entitled to statutory interest under R.C. 1343.03. H&H failed to raise this

issue in the trial court. It is therefore forfeited for purposes of appeal. See Preload, Inc.

v. R.E. Schweitzer Constr. Co., 1st Dist. Hamilton Nos. C-030182, C-030215 and C-

030517, 2004-Ohio-2278, ¶ 8.

{¶23} H&H’s assignment of error is overruled. The trial court’s judgment is

affirmed. Judgment affirmed.

HENDON, P.J., and MOCK, J., concur.

Please note: The court has recorded its own entry this date.