Westburg Construction, Inc. v. Zuckerman

By Judge Stanley P. Klein This matter comes before the Court on cross-exceptions to a Commissioner's Report. The Court has thoroughly reviewed the Commissioner’s report, the record, the parties’ memoranda, and foe authorities cited therein. The Court has also considered foe argumente made by counsel at the two hearings. For foe reasons set forth hereinafter, both parties’ exceptions are overruled except for Defendants’ exception to the Commissioner’s calculation of damages and Plaintiff’s exception regarding pre-judgment interest. This dispute arises out of a contract entered into between foe parties, Plaintiff Westburg Construction, Inc., and Defendant Lilly Zuckerman (“Zuckerman”).1 Plaintiff agreed to design and construct a custom home for the Zuckermans on a lot in Great Falls. Numerous changes were requested by the Zuckermans during the construction process. After Defendants refused to make foe sixth scheduled payment, Plaintiff ceased working on foe project. Plaintiff sued Defendants for foe $117,509 it claims it was never paid. Defendants filed a cross-hill alleging that Plaintiff had, among other tilings, breached the contract — 39 — The Court appointed a Commissioner who conducted a seven day hearing. The Commissioner recommended that the Court award Westburg a personal judgment against Defendants in the amount of $74,474.41. Plaintiff filed eight exceptions to the Commissioner's Report while Defendants filed five general exceptions which included fifty-eight specific exceptions. Both parties have asked the Court to modify the Commissioner's award accordingly. The appropriate standard of review for this Court is whether toe Commissioner’s findings are supported by toe evidence. While a court should defer to toe facts as found by toe Commissioner, toe legal conclusions are subject to an essentially de novo review. Hill v. Hill, 227 Va. 569, 576-77 (1984). In addition “[tjhe report of toe commissioner in chancery does not bind toe court like toe verdict of toe jury.... in suits in equity, toe chancellor is judge of boto toe law and facts, and is presumed to be more competent to pass upon toe evidence and draw correct conclusions from it than the commissioner.” Cannon v. Searles, 150 Va. 738 (1928) (quoting Hitt v. Smallwood, 147 Va. 775, 778 (1926)). In accordance with this standard, the Court has carefully studied toe Commissioner’s Report, toe documentary evidence, the transcript from the trial, the briefs, and the applicable law. I. Defendants'Exceptions A. Breach of Contract Defendants contend that the Commissioner disregarded toe parties' contract when determining who breached toe contract. Defendants suggest that application of toe "first breach rule,” whereby toe first material breach terminates toe contract, ignores toe rights given to toe parties under the contract Defendants rely on Spotsylvania Sch. Bd. v. Seaboard Surety Co., 243 Va 202 (1992), for toe proposition that requiring a “material” breach sometimes alters toe parties’ contract. In that case, toe parties agreed that toe contract would terminate upon a "substantial” violation of it. The Supreme Court concluded that requiring a material breach to terminate toe contract imposed an added burden that toe parties did not bargain for. Id. at 212. The Court concludes that Defendants’ reliance on Spotsylvania Sch. Bd. v. Seaboard Surety is misplaced. The Commissioner’s findings were not premised on who committed toe first material breach, but rather who committed toe first material or significant breach. See Commissioner’s Report, p. 8. The Commissioner determined that Defendants committed toe first breach by toiling to obtain toe construction loan in a timely fashion as required by toe contract. See Commissioner’s Report, p. 7. Defendants argue — 40 — that Westburg waived this breach by starting construction of tine house. Even if the Court were to agree with the Defendants’ position on the waiver issue, the evidence supports the Commissioner’s finding that Defendants committed the next significant breach of the contract when they withheld the sixth payment The Court overrules this exception. B. Lost Profits Defendants also object to the Commissioner’s award of lost profits of $7,005 to Westburg for work required by the contract which Plaintiffs were unable to complete due to Defendants’ non-payment Defendants argue that lost profits were not appropriate under the parties’ contract or Virginia law. Furthermore, Defendants claim that no evidence was presented at the Commissioner’s hearing to support this award. "[DJamages are recoverable for loss of profits prevented by a breach of contract only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty." Boggs v. Duncan, 202 Va. 877, 883 (1961). The parties agree fee Commissioner necessarily found feat, under fee contract, there was $70,056 worth of work remaining to be done on fee house. In addition to the documents received in evidence, which reflect a 10% profit margin, a witness from each side testified that there was to be a 10% markup for profit. See Transcript, pp. 1170,1499. The Commissioner, therefore, appropriately awarded lost profits of $7,005, to wit, 10% of fee additional work Westburg would have completed but for the Zuckermans’ breach. The Court overrules this exception as a reasonable basis did exist, as required by Virginia law, for fee Commissioner to calculate lost profits. C. Calculation of Damages Defendants object to fee formula used by fee Commissioner to calculate the damages owed to Westburg. As indicated in his report, *[y]our Commissioner is of fee opinion that Westburg is entitled to fee cost of work which is performed, less valid coste to correct deficiencies, and including a lost profit on a remainder of fee project, which is in fee amount of $74,474.41.” Commissioner’s Report, p.15. In addition, defendants argue that — 41 — die first nine items2 awarded by die Commissioner’s computation wore already required under die parties’ contract. The calculation of damages Plaintiff is entitled to is a legal issue subject to this Court’s de novo review. Hill v. Hill, 227 Va. 569, 576-77 (1984). Based on die mathematical formula set forth in the Report, the Court is liable to discern how the Commissioner factored in payments Defendants made to Plaintiff. See Commissioner's Report, pp. 15-16. It appears as if the Commissioner may have utilized an item by item approach for the work Plaintiff claimed was unpaid. The Court sustains Defendants’ exception because the Commissioner apparently used a quantum meruit method of calculating Westburg’s damages rather than determining die amount Westburg was entitled to receive pursuant to die terms of the parties’ contract The evidence clearly establishes that the original contract juice included completion of items for which the Commissioner awarded additional compensation. Therefore, Westburg is not entitled to an award for those items. See Footnote 1. The proper methodology under Virginia law for calculating Plaintiff’s damages is as follows: $392,680 Original Contract Price + 25,870 Change Orders ##1-4 — 70,056 Work Remaining to be Done Under die Contract + 35,087 Change Orders ## 5-8,12,13,15 + 7,005 Lost Profits owed to Westburg Based on die Remaining Work $390,586 Sub-total — 318,798 Amount Paid by the Zuckermans — 21,337 Credit for Defective Work $50,451 Amount Due and Owing to Westburg — 42 — This figure represents file appropriate calculation of damages based upon the factual findings set out in file Commissioner’s Report. Based on the Court’s recalculation of Plaintiffs damages, the Court need not address the exceptions to alleged mathematical errors in the Commissioner’s computation. These exceptions included Plaintiff’s exception regarding Change Order # 13 and Defendants’ exception to file deduction of the $15,000 retainage. The record is clear that the Zuckermans paid Westburg $318,798 in addition to any sum that file lender may have set aside as retainage. The evidence was further uncontested that the parties agreed that file plaintiff would not perform the work leading to Change Order # 13. II. Plaintiff^ Exceptions A. Mechanic'S Lien Westburg excepts to file Commissioner’s conclusion that file mechanic’s lien filed by Westburg is invalid as over broad. Plaintiff concedes and file evidence supports the Commissioner’s finding that the lien includes work done more toan 150 days prior to toe filing of Plaintiff’s memorandum of lien. Under Virginia Code § 43-4, “toe lien claimant may file any number of memoranda but no memorandum filed pursuant to this chapter shall include sums due for labor or materials famished more than 150 days prior to toe last day on which labor was performed or material furnished to toe job preceding the filing of such memorandum.” The issue, therefore, is whether toe lien can be allowed to stand with respect to toe work performed within toe time ñame dictated by toe General Assembly in §43-4. The Commissioner concluded that it could not “Being in derogation of toe common law, toe statutes relating to toe existence and perfection of a mechanic’s lien are strictly construed.” Rosser v. Cole, 237 Va. 572, 576 (1989). While no Virginia appellate court has addressed precisely this issue,3 toe Virginia Supreme Court has discussed over-inclusive Mens placed on property on which no work was done, In Woodington Electric v. Lincoln Savings, 238 Va. 623 (1989), toe Court ruled that an attempt by a mechanic to assert one Men against several parcels of land, only some of which he had worked on, rendered toe entire Men invaMdL The decision rested on public policy concerns. — 43 — In our view, toe statutory scheme, as it has been interpreted by this Court, is one which places great power in toe hands of mechanics but which purposefully contains that power within carefully circumscribed limitations. The aim of the statutory scheme is to aid toe mechanic while protecting the owner from abuse .... Mechanic’s lien law in Virginia will not permit a claimant to file an over-inclusive lien and then leave it to toe trial court to excise any excess property. It is toe mechanic's duty to place his lien upon toe property upon which he worked and no more. Id. at 634. Applying this rational to the present case, Westburg was required to filé alien for only toe work performedwithin toe window of time set forth in toe statute. Relying on Woodington, Johnson v. Tadlock, and toe generally strict application of toe mechanic's Hen statutes, this Court holds that toe entire Hen fails. The Court therefore overrules Plaintiffs exception and affirms toe Commissioner’s conclusion that toe entire Hen must be released. B. Costs of the Commissioner's Hearing Plaintiff excepte to toe Commissioner’s recommendation that toe parties equally share toe cost of the hearing. Plaintiff relies on Virginia Code § 14.1-178 which provides that "the party for whom final judgment is given in an action... shall recover his costs against the opposite party." Defendant argues that toe Commissioner’s award as to costs should be left undisturbed because Code § 14.1-177 places the award of «tete in equity cases within toe trier of fast’s discretion. The Zuckermans assert that toe award of costs herein logically reflects toe Commissioner’s conclusion that boto parties were to some degree "at fault." See Commissioner’s Report, p. 8. Following a basic tenet of statutory interpretation, toe Court must fashion an interpretation of Code §§ 14.1-177 and 14.1-178 which gives meaning to boto without eviscerating either. Natrella v. Board of Zoning Appeals, 231 Va. 451, 461 (1986); Cooper v. Occoquan Land Development Corp., 8 Va. App. 1 (1989). In addition, the Court is bound by toe rule that "when one statute speaks to a subject in a general way and another deals with a part of toe same subject in a more specific manner, toé two should be harmonized, if possible, and where they conflict, the latter prevails.” Virginia Nat'l Bank v. Harris, 220 Va. 336, 340 (1979). The Court will apply § 14.1-177 as it is toe more specific statute applying only to cases in equity. Therefore, it was within the Commissioner’s discretion to spHf the costs. There has been no showing of — 44 — abuse of his discretion and therefore, the Court affirms this ruling and overrules Plaintiffs exception. C .Pre-Judgment Interest Plaintiff excepts to the Commissioner’s Report because it failed to award Plaintiff pre-judgment interest on the sum awarded. Defendants claim that the Commissioner’s failure to address fee pre-judgment interest claim in his report implies that he deemed it appropriate to deny this aspect of Plaintiffs claims. They argue that Virginia Code § 8.01-382 makes fee award of pre-judgment interest discretionary. "[Tjhe judgment or decree of fee court, may provide for interest on any principal sum awarded, or any part thereof, and fix fee period at which the interest shall commence.” Va. Code §8.01-382; see also Dairyland Ins. v. Douthat, 248 Va. 627 (1994). Because fee Commissioner determined that both parties were at fault, Defendants suggest that fee withholding of pre-judgment interest on Plaintiffs award was appropriate. An award of prejudgment interest lies within fee discretion of fee trier of feet Id. As fee Commissioner’s Report fails to even address the request for pre-judgment interest, this Court cannot conclude that fee Commissioner ever exercised the discretion fee statute requires. Therefore, the Court sustains Westborg’s exception. When fee court considers fee evidence in this case and the findings of fee Commissioner, it exercises its discretion to award Westburg pre-judgment interest commencing November 3, 1994. Pursuant to Virginia Code § 6.1-330.54, ”[aj money judgment entered in an action arising from a contract shall cany interest at fee rate lawfully charged on such contract or nine percent annually whichever is higher.” As the parties’ contract provided for interest on any past due payments at a rate of 12% per annum, pre-judgment is set at the rate of 12% per annum. III. Remaining Exceptions The parties have filed numerous additional exceptions to feet specific findings made by fee Commissioner as to different aspects of fee construction of fee residence.4 As Wesfeurg’s counsel correctly acknowledged during oral — 45 — argument, the Commissioner's factual findings are presumptively correct. Morris v. United Va. Bank, 237 Va. 331, 338 (1989). This Court’s inquiry is limited to whether the Commissioner’s factual findings are supported by credible evidence in the record. Id. This Court declines the Zuckermans' repeated requests to ignore this controlling Virginia precedent and review de novo virtually all of the factual findings made by the Commissioner which were contrary to their arguments. Accordingly, the parties' remaining exceptions are overruled. Except as set forth above, the Court adopts the findings and recommendations set forth in the Commissioner’s Report and based on the breach of contract claim, judgment is granted to the Plaintiff Westourg Construction, Inc., against Defendant Lilly L. Zuckerman in the principal sum of $50,451, with interest at the rate of 12% per annum from November 3, 1994, until paid, and consistent with the contents of this letter opinion, the Plaintiff's other recoverable costs expended herein. Footnotes [1] Suit was filed against both Lilly and Bram Zuckerman but the contract with Westburg was signed only by Lilly Ztscksrmsn. As dee judgment is granted on dm breach of contract claim rather than the quantum meniit claim, it is granted only against Lilly Zuckerman. [2] General Requirements ($5,040), Masonry ($930), Metals ($U20), Wood ($6,304), Doors, Windows ($3,972), Finishes ($10,112), Phimbing ($3,575), Electrical ($4,70©), and Overhead and Profit ($2,767). [3] See Johnson v. Tadlock, 39 Va. Cir. 436 (1996) (holding that a mechanic’s lien finis in its entirety if it includes work done outside the statutory period). [4] Plaintiffs Exceptions 5-8; Defendants' Exceptions 1-16, 37-58. The Commissioner's decision to allow Plaintiff to reopen its case was within theCommissioner’s broad discretion. See Hargraves v. Commonwealth, 219 Va. 604, 608 (1978). The Court finds that die Commissioner did not abuse his discretion in allowing Plaintiff to reopen its case. Moreover, in determining whether the Commissioner's findings are supported by the evidence, the Court must consider not only Plaintiffs but also Defendants' evidence. Id. at 605.