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Shelter Products, Inc. v. Steelwood Construction, Inc.

Court of Appeals of Oregon

July 3, 2013

SHELTER PRODUCTS, INC., an Oregon corporation, Plaintiff,
v.
STEELWOOD CONSTRUCTION, INC., a Washington corporation, Defendant-Respondent, and CATAMOUNT CONSTRUCTORS, INC., a Colorado corporation, Defendant-Appellant, and HD SALEM OR LANDLORD, LLC; and SAFECO INSURANCE COMPANY OF AMERICA, a Washington corporation, Defendants. STEELWOOD CONSTRUCTION, INC., Third-Party Plaintiff,
v.
HOME DEPOT, INC., Third-Party Defendant.

Argued and submitted on September 18, 2012.

Marion County Circuit Court 10C20285 Pamela L. Abernethy, Senior Judge. (Limited Judgment)

Bernard L. Smith, Senior Judge. (Supplemental Limited Judgment)

D. Brent Carpenter argued the cause for appellant. With him on the briefs were Joseph A. Yazbeck, Jr., and Yazbeck, Cloran & Bowser, PC.

Shawn A. Elpel, Washington, argued the cause for respondent. On the brief were Albert F. Schlotfeldt and Duggan Schlotfeldt & Welch PLLC.

Before Ortega, Presiding Judge, and Sercombe, Judge, and Hadlock, Judge.

SERCOMBE, J.

This case involves a dispute between a general contractor, Catamount Constructors, Inc. (Catamount), and one of its subcontractors, Steelwood Construction, Inc. (Steelwood).[1] Catamount contracted with Steelwood to perform work and provide certain materials for the construction of the Salem Home Depot regional distribution center (the project). However, after Steelwood provided the materials in question and began work on the project, Catamount terminated its agreement with Steelwood "for convenience." Steelwood filed a construction lien on the project and, as part of this action, alleged claims for, among other things, breach of contract and construction lien foreclosure.[2] Thereafter, Steelwood sought summary judgment against Catamount and, after a hearing, the trial court granted the motion and entered a limited judgment against Catamount.[3] On appeal, Catamount raises five assignments of error, asserting that the trial court erred in granting summary judgment in favor of Steelwood. For the reasons explained below, we affirm the grant of summary judgment.

When reviewing a trial court's grant of summary judgment, we view the facts and all reasonable inferences that may be drawn from them in the light most favorable to the nonmoving party--in this case, Catamount. Vaughn v. First Transit, Inc., 346 Or 128, 132, 206 P.3d 181 (2009).

Catamount, as noted, was the general contractor on the project and hired Steelwood as a subcontractor. Catamount and Steelwood entered into a purchase order, a subcontract, and a joint check agreement. Pursuant to the purchase order, which was signed "in conjunction with the Subcontract for a complete Steel erection and panelized roof system, " Steelwood was to provide materials for which Catamount was to pay a total of $300, 000. Under the subcontract, Steelwood was to complete the installation of structural steel and the roofing system for the project. The agreement, which the parties signed on March 24, 2010, provided a schedule pursuant to which work was to begin by May 2010 and be completed in July. The subcontract specified that time was of the essence. Among other things, the subcontract provided that Catamount could terminate the agreement for convenience:

"18. Termination for Convenience. The Contractor may, upon seven (7) days written notice to the Subcontractor, without cause and without prejudice to any other right or remedy, terminate this Subcontract, in whole or in part, for its convenience. Upon receipt of any such notice, Subcontractor shall, unless the notice directs otherwise, immediately discontinue the work on that date and to the extent specified in the notice, place no further orders or subcontracts for materials, equipment, services, or facilities, except as may be necessary for completion of such portion of the work as is not discontinued; promptly make every reasonable effort to procure cancellation upon terms satisfactory to Contractor of all orders and subcontracts to the extent they relate to the performance of the discontinued portion of the work and shall thereafter do only such work as may be necessary to preserve and protect work already in progress and to protect materials, plant and equipment on the site or in transit thereto. The obligations of the Subcontractor shall continue as to portions of the work already performed and as to bona fide obligations assumed by Subcontractor prior to the date of termination. Subcontractor shall be entitled to be paid the full cost of all work properly done by Subcontractor to the date of termination not previously paid for, less sums already received by Subcontractor on account of the portion of the work performed. Should the Contractor's termination of the Subcontract under this paragraph be deemed improper or wrongful, then such termination shall be deemed automatically to have occurred pursuant to Contractor's rights under paragraph 17."

(Boldface omitted.) The agreement also provided that Catamount could make payment to Steelwood through joint checks made payable "to the joint order of [Steelwood and its] sub subcontractors, suppliers or others * * *." The joint check agreement, executed by representatives of Catamount, Steelwood, and Shelter Products (one of Steelwood's suppliers on the project) on the same day as the subcontract, [4] provided that Catamount would "endeavor to make monthly payments jointly to [Shelter Products] and [Steelwood] for all amounts owing to [Shelter Products] during the course of the Project * * *."

All of the materials required under the purchase order were delivered to the work site and, thereafter, Steelwood invoiced Catamount for those materials. Catamount did not pay the invoice at that time. After Steelwood began work on the project, on Wednesday, June 16, 2010, Catamount's project manager sent Steelwood a letter outlining concerns about the progress of work on the project. In particular, he set out several issues: (1) there would be additional costs if the work was not complete within the agreed time period; (2) daily housekeeping at the work site was inadequate and Catamount planned to begin cleaning up after Steelwood and billing Steelwood for that; (3) certain work was deficient--certain braces and nailing were incomplete and some nails, bolts, and plates were missing; and (4) "[p]roduction is not where committed to in [the] contract." The project manager stated that "[o]n Monday morning we will evaluate where you are and how to best assist you in meeting your contractual obligations." However, on Saturday, June 19, 2010, Catamount terminated the contract for convenience pursuant to paragraph 18 of the subcontract. Accordingly, on Monday, June 21, Steelwood vacated the work site.

After it terminated Steelwood for convenience, Catamount refused to pay Steelwood's invoice for materials delivered under the purchase order. It also declined to pay Steelwood for work performed under the subcontract prior to termination. Thereafter, Steelwood recorded a construction lien for $369, 679.30. Several of Steelwood's suppliers for the project--Shelter Products, White Cap Construction Supply, and Ahern Rentals--also filed construction liens on the property, and Catamount posted bonds on those liens.

Catamount, for its part, cleaned debris left by Steelwood on the project site and entered into a subcontract with a new company, Panelized Structures, to complete the work Steelwood was to have done. According to Catamount, it incurred $75, 440 in conjunction with the clean up and to repair Steelwood's work:

"That amount is comprised of $61, 668 which Catamount paid to Panelized Structures to repair and clean up Steelwood's defective work; $276.00 Catamount incurred for clean-up of the Project site that it performed; $150.00 Catamount spent to hire a locksmith to enter a storage unit which Steelwood had left locked; and $13, 350.00 which Catamount incurred in additional labor and travel costs in coordinating and supervising the above-described repairs and clean-up."[5]

However, after terminating the contract with Steelwood, Catamount did not provide Steelwood with notice that its work was defective or needed repair, nor did it give Steelwood an opportunity to enter the work site with respect to any defects in the work it performed.

After filing its lien, Shelter Products filed an action against Steelwood and Catamount to obtain payment for the materials it had provided on the project. Steelwood, in turn, filed cross-claims against Catamount for payment of the materials and labor it had supplied under the purchase order and subcontract. Catamount then asserted that it was entitled to an offset and maintained that Steelwood was responsible for the amounts Catamount incurred repairing the work Steelwood had done and for attorney fees and other amounts incurred by Catamount relating to the liens. While the action was pending, Catamount paid Shelter Products, White Cap Construction Supply, and Ahern Rentals the amounts they were owed and discharged their liens.

Eventually, Steelwood sought summary judgment against Catamount on its claims for construction lien foreclosure and breach of contract, asserting that it was entitled to recover the amount owed under the purchase order and, as a result of the termination for convenience, the full cost of all work it had performed under the subcontract. In particular, as costs, it asserted it was entitled to recover amounts it expended on the project as well as profit and overhead. Catamount responded that Steelwood was not entitled to summary judgment because "Catamount's costs incurred in repairing Steelwood's defective work, in discharging Steelwood's suppliers' and subcontractor's liens, and its costs relating to Steelwood's overstated lien total a greater sum than it owes Steelwood under the subcontract between them." Steelwood replied, in part, that, because Catamount had terminated Steelwood for convenience, it could not avoid paying by asserting that the work Steelwood had done was defective. Furthermore, according to Steelwood, it was "terminated from the site before finishing" work and was not given notice after that termination that its work was defective.

At the end of the hearing on the summary judgment motion, the court ruled from the bench and granted summary judgment in favor of Steelwood. It explained:

"Catamount argues that summary judgment should not be granted because, 'Its costs incurred in repairing Steelwood's defective work, and discharging Steelwood's supplies, and subcontractor liens, and its costs relating to Steelwood's overstated lien total a great[er] sum than the amount it owes Steelwood under the contract.'
"So Catamount is admitting that it does owe money under the contract. It just says at the end of the day there are no damages. So that gets us to address the two bases of damages that it claims are the offset.
"The first is the purchase order, which we've just been discussing. And the court finds under these circumstances that it was an act or omission of the contractor, not an act or omission of the subcontractor that started the chain of events that resulted in these subs not being paid.
"When looking at both the contract and the joint check agreement, which is an agreement in pari materia, or reading them both together, Catamount was to endeavor to make monthly payments jointly to the supplier and subcontractor, and all amounts owing to the supplier during the course of the project. And this was not done.
"So when I read act or omission subparagraph 32 [of the subcontract], in light of the joint check agreement * * * I conclude that even looking at the facts in light most favorable to Catamount in this regard."

Turning to the issue of whether "the 'repair of defective work' [defense] is somehow viable, " the court explained:

"Looking at the evidence in light most favorable to Catamount, they're claiming $75, 444. And the Court agrees with [Steelwood's argument] that when there is a termination for convenience, not a termination for cause, there's been no opportunity to inspect and cure. In fact, the exhibit that was provided by Catamount itself clearly demonstrates that. The exhibit * * * suggest[s] that there be a Monday meeting. Never was a Monday meeting because by Saturday the date of the termination of convenience was executed.
"So to go back now without giving [Steelwood] an opportunity to inspect, to cure, to do anything, and just say that the contract somehow allows under termination of convenience for the contractor to then go in and discover all of these things that it now charges against the subcontractor, is not provided by the terms of the contract, is ...

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