On November 1, 2011, the Washington Court of Appeals upheld a $4 million jury verdict by a small works contractor against the Grays Harbor County Public Utility District (the “PUD”). In Spradlin Rock Products, Inc. v. Public Utility District No. 1 of Grays Harbor County, the PUD was punished by a jury when it refused to pay a small Grays Harbor hauling and rock construction company. The facts are as follows:
Tim and Terese Spradlin (“Contractor” or “Spradlin”) own a construction company in Grays Harbor that hauls rock and builds roads. Since 2000, the Spradlins had been performing work for the PUD on a small works roster basis (contracts of less than $200,000).[i] In December 2006, Spradlin and the PUD entered into a small works contract, which provided that Spradlin would be paid $52.90 per hour for four pieces of operated equipment (the equipment was operated by Tim Spradlin, the owner, and a salaried supervisor; both were exempt from prevailing wage laws). The contract also provided that, if the project required use of equipment not included in the contract, Spradlin and the PUD would negotiate rates for the equipment.
On December 2, 2007, an event rocked Spradlin’s world, as well as all of Grays Harbor County. A major storm left 98% of the residents without power, and required a major cleanup and renovation of the roads. The PUD asked Spradlin, who had already maxed out the $200,000 small works contract, to begin the repair on the roads and to provide access to the PUD’s repair crews. The PUD orally agreed to cover Spradlin’s expenses plus a reasonable profit. A few days later, the PUD passed a resolution which allowed the PUD to bypass the required notice and competitive bidding requirements of RCW 39.04.280(2)(b).[ii]
The PUD then asked Spradlin to perform additional road work. Spradlin hired non-salaried workers, rented more equipment to perform the cleanup work, and did millions of dollars of work. In February 2008, Spradlin submitted its first set of invoices to the PUD. The PUD anticipated being reimbursed for Spradlin’s cost to repair the damage caused by the December 2007 storm from the Federal Emergency Management Agency (“FEMA”), and required Spradlin to submit its invoices in FEMA’s invoicing format. After being rejected twice by the PUD, and resubmitting its invoices in more detail (Spradlin listed each piece of equipment, the number of hours it was used, and the hourly rate as well as the number of hours for each employee), the PUD finally approved and paid Spradlin the for its invoices, in an amount over $1.5 million. At no time during the work performed by Spradlin did the PUD complain about, or dispute the rates or the quality of work performed by the contractor.
In mid-March 2008, before Spradlin submitted its second set of invoices, FEMA denied the PUD’s claims for reimbursement for the work performed by Spradlin. A few days later, the PUD terminated Spradlin’s contract and refused to pay any of the outstanding invoices.
Spradlin filed suit against the PUD for over $3.4 million in outstanding invoices. The PUD, after learning that FEMA was not going to reimburse the PUD for the invoices, took the position that Spradlin was only entitled to compensation on a cost basis, not on the basis of the rates plus profit that the PUD had approved and paid on the first set of invoices. Since the contract was not in writing, the issue before the court was whether the contractor should be compensated for the unpaid invoices on a cost basis or on a rate basis for the unpaid invoices.
- The court looked to the parties’ course of dealing and concluded that, although the PUD reserved the right to check the supporting documentation for mistakes, it did not reserve the right to question the rates Spradlin billed unless there was a mistake found on the review of the documentation supporting the paid invoices. In other words, Spradlin was entitled to be compensated based on the labor rates, equipment rates, and overhead charges that had been paid on the first invoice. In looking at the course of dealing, the court borrowed a concept from the Uniform Commercial Code (“UCC”) Article 2, in which a party’s course of performance is relevant in interpreting the meaning of an agreement. In this case, the PUD’s course of dealing, paying the rates from the first set of invoices, showed acceptance or acquiescence by the PUD of the contractor’s billing, and thus the court held the PUD to the same rates on all subsequent billings.
- The court also allowed the contractor to recover its claim for lost profits. Spradlin had a claim against the PUD for a small works contract that it anticipated it would have been awarded but for the PUD’s sudden termination of Spradlin’s contract. The PUD argued that Spradlin’s lost profits claim was too speculative, and there was no guarantee that Spradlin would have received the subsequent small works roster project. The court disagreed. Based on Spradlin’s continuous business relationship with the PUD since 2000, it was reasonable to believe that Spradlin would have received the small works project. There is no requirement that Spradlin establish that it would have received the project with “absolute certainty.” The court relied on the principal “the wrongdoer shall bear the risk of the uncertainty which [its] own wrong has created.” In other words, the PUD’s wrongful termination of Spradlin created the uncertainty with regard to Spradlin’s subsequent award of the small works project, and thus the PUD bore that risk.
- The court allowed prejudgment interest to be awarded against the County of $659,149.60! Though a portion of Spradlin’s claim was not liquidated (it was not possible to compute the amount with exactness without relying opinion or discretion). The PUD argued in its closing argument that it only owed Spradlin $3.3 million, therefore, the court found the sum to be liquidated holding “prejudgment interest as favored in the law based on the premise that he who retains money he should pay to the other should be charged interest on it.”
- The PUD was also bench slapped for failing to follow the public works bidding law. The PUD contended that one of the road projects that Spradlin was awarded was not an emergency project related to the December 2, 2007 storm, and therefore not subject to the oral agreement concerning rates. The court pointed out that if Spradlin’s work was not performed pursuant to a contract formed under the PUD’s emergency declaration, the PUD’s contract with Spradlin would constitute an illegal contract for failure to comply with RCW 54.04.070 bidding and notice requirements.
The jury awarded Spradlin approximately $4.2 million! The trial court awarded Spradlin $659,000 in prejudgment interest and $25,000 in attorneys’ fees. It appears that the PUD, after it learned that the federal government was not going to compensate it for the storm cleanup, took a hard line with the contractor. When the PUD believed FEMA was paying the PUD had no issue with paying Spradlin. The jury saw, through the PUD’s change in position, that the PUD should be held accountable.
This case took place in Grays Harbor County. The jury was likely composed of PUD rate payers, and the verdict will ultimately be paid by the very people who were in the jury box making the decision. This case is a good example of why it does not pay to take a dispute to court that is a clear loser. The jury obviously saw through the PUD’s tactics and punished the PUD accordingly.
[i] Under RCW 39.04.155, for small works contracts, the PUD is allowed to bypass the typical notice and bidding required under former RCW 54.04.070 on individual projects costing less than $200,000 (in 2009, the legislature raised the threshold from $200,000 to $300,000).
[ii] RCW 39.04.280(2)(b) provides that in emergencies, the PUD can declare an “emergency”; that the competitive bidding requirements can be waived and contracts can be awarded, provided there is a written of the existence of an emergency made by the governing body no later than two weeks following the award of the contract.