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TCH Builders v. Elements of Constructions, Inc.

Supreme Court of Montana

March 26, 2019

TCH BUILDERS and REMODELING and PHIL THELEN, Plaintiff and Appellee,

          Submitted on Briefs: January 16, 2019

          District Court of the Twentieth Judicial District, In and For the County of Lake, Cause No. DV 15-88 Honorable James A. Manley, Presiding Judge

          For Appellants: Brian J. West, West Law Firm, PC, Missoula, Montana J. Andrew Person, Stephen R. Brown, Garlington, Lohn & Robinson, PLLP, Missoula, Montana Brian Donnelly, Nixon Peabody LLP, Washington, District of Columbia

          For Appellee: Nathan G. Wagner, Datsopoulos, MacDonald & Lind, P.C., Missoula, Montana

          JIM RICE, JUSTICE.

         ¶1 Homes For Our Troops (HFOT) appeals the order entered by the Twentieth Judicial District Court, Lake County, awarding attorney's fees to TCH Builders and Remodeling (TCH). The District Court determined that all fees incurred by TCH for the entire action were recoverable from the construction lien bond posted by HFOT. We consider the following issue, and reverse and remand for further proceedings:

Did the District Court abuse its discretion by assessing all of TCH's attorney fees against the construction lien bond posted by HFOT?


         ¶2 HFOT is a Massachusetts-based nonprofit corporation that builds custom homes throughout the country and donates them to disabled veterans. In a typical project, HFOT purchases a plot of land, hires a construction company to build a customized home on the plot, and then donates the property free of charge to the veteran and his or her family. In October 2013, HFOT purchased a plot of land in Polson, Montana, planning to build a customized home and donate it to Thomas Parker, a combat Marine veteran who was severely injured in Afghanistan. Pursuant to a written agreement, HFOT hired Elements of Construction, Inc. (EOC), a Georgia company, to serve as general contractor for the project. In December 2013, EOC subcontracted with TCH, a Montana construction company owned and operated by Phil Thelen, to construct the house. The written contract between them stated a contract price of $342, 000. HFOT was not party to the contract between EOC and TCH, which included a clause providing attorney fees to the prevailing party in the event of a dispute between them.

         ¶3 TCH began construction, but difficulties arose between TCH and EOC. In April 2014, EOC became concerned TCH was falling behind the construction schedule and faltering in its management of the project. To address these concerns, EOC sent employee Jim Ham from Georgia to supervise the project's completion. In correspondence, EOC indicated to TCH that "[a]ll costs incurred" in Ham's efforts to "execute this project appropriately . . . will be charged to TCH." Tensions continued to rise between EOC and TCH over the next several months, and EOC alleged defects in TCH's work. On November 7, 2014, EOC changed the locks on the doors of the house and locked out TCH. In his testimony, Thelen estimated that only ten percent of the project then remained uncompleted. Following a physical altercation between Ham and Thelen in the driveway to the house, EOC fired TCH, hired new subcontractors to complete the house, and refused to pay the balance that remained under the EOC-TCH contract for TCH's finished work. At this point, TCH had been paid $130, 757.06 by EOC.[1]

         ¶4 TCH filed a construction lien against HFOT's property for $183, 242.94, the amount in labor and materials it claimed to have provided to the project that had not been compensated, and initiated this action against EOC and HFOT, claiming breach of contract, foreclosure of the construction lien bond, breach of covenant of good faith and fair dealing, fraud, assault and battery against Ham, and seeking punitive damages. HFOT substituted a bond in place of the lien so that title to the home could be transferred to Thomas Parker while the litigation pended. The bond amount was $274, 864.41, or "1 ½ times the amount of the construction lien," pursuant to § 71-3-551(2), MCA. In its complaint, TCH demanded $183, 242.94 under the lien and, alternatively, $211, 242.94 in damages for breach of contract, the unpaid amount of the price in the EOC-TCH contract. EOC counterclaimed, alleging breach of contract by TCH.

         ¶5 After discovery and pre-trial motions, the District Court dismissed all claims against HFOT except for TCH's lien claim against HFOT's bond.[2] A pretrial order was entered by the District Court that contained no factual allegations specific to TCH's lien, and no contentions specific to HFOT, but instead was focused exclusively upon issues specific to TCH's claims against EOC.

         ¶6 A five-day jury trial was conducted, involving numerous witnesses called by TCH and EOC. HFOT called no witnesses. By special verdict, the jury found in favor of TCH and awarded damages on all of its claims against EOC, except assault and battery, and by supplemental verdict, awarded punitive damages, in the following amounts:

Breach of contract:
$ 206, 000
Breach of the implied covenant:
$ 715, 000
$ 168, 000
Punitive damages:
$ 749, 000
$ 1, 838, 000

         TCH's lien claim was not included on the verdict form, and the jury made no findings of liability specific to HFOT.

         ¶7 Post-trial, TCH moved the District Court for foreclosure of the construction lien bond to compensate for "the value of the services and materials provided," as well as prejudgment interest and attorney fees. Entering the $1.838 million judgment against EOC, the District Court noted that "[t]his Judgment shall be subject to a dollar-for-dollar offset in the amount of any monies recovered by Plaintiff TCH against the Cash Bond filed with the ...

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