Tennessee Court of Appeals affirms award of approximately $200,000 in compensatory damages and attorneys’ fees to engineering firm in contract interpretation dispute.
In Gresham, Smith & Partners v. Middleburg Real Estate Partners, LLC, 2023 Tenn. App. LEXIS 395 (Tenn. Ct. App. Sep. 25, 2023), a defendant developer (the “Developer”) appealed the trial court’s ruling that they breached their contract with the plaintiff architecture and engineering firm (the “Engineer”). The Tennessee Court of Appeals at Nashville affirmed the trial court’s ruling in all respects and remanded for determination of additional attorneys’ fees and costs incurred on appeal to be paid by the Developer.
The Developer hired the Engineer to perform civil engineering and related services via a Consulting Agreement in November 2016. The Engineer presented the final Consulting Agreement to the Developer with several attachments, including: (1) a “scope of services” document; (2) a document entitled “Limitations on Phase I Environmental Site Assessment Services”; 3) the Engineer’s rates for engineering and consulting services; and 4) a “Standard Form Agreement.”
After executing the Consulting Agreement, the parties began performing their contractual duties. The Engineer routinely sent invoices to the Developer who would make payments. However, three invoices from September, October, and November of 2016 went unpaid. These invoices had been sent by the Engineer to “Mr. Evans,” who was the Developer’s point of contact. The Engineer notified the Developer that payment was overdue. The Developer eventually paid the September 2016 invoice in June 2017. The Developer then informed the Engineer via email that it was the only unpaid invoice they had. After receiving the email from the Developer, the Engineer resubmitted the October and November invoices to the email address specified in the contract.
The invoices remained unpaid, and the Engineer filed suit in April 2018, claiming breach of contract, violation of the Tennessee Prompt Payment Act, and unjust enrichment. The trial court dismissed the unjust enrichment and Prompt Payment claims and litigation ensued on the breach of contract claim.
The trial court held (1) that the contract between the Engineer and Developer was valid and enforceable, (2) that the Engineer was entitled to reasonable attorneys’ fees and costs, (3) that the services charged for in the unpaid invoices were within the scope of the Engineer’s employment, (4) that Mr. Evans had authority to instruct the Engineer on their provided services, (5) that submitting the invoices to the email address provided in the contract was not a condition precedent to payment, and (6) that the Developer committed a material breach of the Consulting Agreement when it failed to timely pay the September 2016 invoice. The trial court entered a judgment in favor of the Engineer and awarded $73,663.07 in compensatory damages for the unpaid invoices plus interest and $122,995.79 in attorney fees and expenses to be paid by the Developer.
The Developer appealed to the Tennessee Court of Appeals at Nashville and asserted three issues: 1) that the trial court’s interpretation of the contract was flawed, 2) that the Developer did not breach the contract first, and 3) that they were not required to pay the Engineer’s attorneys’ fees.
Regarding the first issue, the Developer argued that the trial court erred in determining that the attachments sent with the Consulting Agreement were included in the signed contract. Rather than listing the terms of the Standard Form of Agreement in the Consulting Agreement, the form was “placed on top” of the contract which was then signed. This was significant because the attachments described the Developer’s timely payment duties. The Consulting Agreement was integrated, meaning that all prior or contemporaneous agreements were nullified unless they were established in the final contract. The Court discussed the importance of interpreting contracts in consideration of the intent of the parties when the contract was executed. The Consulting Agreement referenced the attachments, signaling to the court that the attachments were included. Additionally, the project executive for the Engineer testified that it was his intention and belief that the attachments were part of the final agreement. The Developer even effectively admitted that the attachments were included in the contract in their response to the original complaint. Therefore, the Court determined that, although it was not the best practice of contract drafting, it was clear that the parties intended the attachments to be part of the final contract at the time of signing.
After establishing the terms of the agreement, the Court turned to the second issue of whether the Developer committed the first material breach by failing to pay the last three invoices in a timely manner. First, the Developer argued that the Engineer breached by failing to send the invoice to the email address specified in the contract. The Court reasoned that the Engineer eventually sent the invoices to the proper email, yet they remained unpaid. The Developer was thus given actual notice of their need to pay the invoices. Second, the Developer asserted that the invoiced services were beyond the Engineer’s scope of services. The Court found that Mr. Evans, the point of contact for the Developer in Nashville, had authority to oversee the Engineer’s activities and that the work billed for conformed to the Engineer’s contractual duties. Accordingly, the Court held that the Developer, rather than the Engineer, committed a material breach by failing to pay the invoices in a timely manner.
A prevailing party is a party who prevails on any significant issue in the lawsuit and achieves some of their sought benefit.
On the third issue, the Developer argued that there was not an attorneys’ fees provision in the Consulting Agreement, that the Engineer was not a “prevailing party” to qualify for attorneys’ fees, and that the amount awarded by the trial court was unreasonable. The Developer pointed out that Tennessee follows the “American Rule” which states that parties in a civil action shall pay their own attorneys’ fees, unless there is a statutory or contractual right to have them paid or some other situational exception. The Court found that the Engineer had a contractual right to have attorneys’ fees paid by the defense. The Standard Form of Agreement, which the court had established was part of the binding contract, stated that the prevailing party was entitled to attorneys’ fees. Although the Engineer did not prevail on their unjust enrichment and Prompt Payment Act claims, success on the breach of contract claim was enough. The Court explained that a prevailing party is a party who prevails on any significant issue in the lawsuit and achieves some of their sought benefit. Since the Engineer was collecting their sought damages for breach of contract, they were the prevailing party. Finally, the Court determined that there was no reversible error in the trial court’s award of attorneys’ fees. The fees charged were all based on or related to the contract at issue and had even been discounted by the Engineer’s attorney due to a personal friendship.
What’s the takeaway?
This case is a reminder that of the importance of drafting sound contracts. Avoiding ambiguity, such as by clearly stating which exhibits are incorporated by reference in the contract, can avoid complex and costly litigation, such as the instant dispute involving interpretation of the contract based on the perceived intent of the parties and surrounding circumstances. This is also a cautionary tale on attempting to avoid contractual obligations on grounds such as a failure to submit invoices to the address set forth in the applicable contract. As always, when in doubt, contact your attorney!
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