Excel Underground, Inc. v. Brant Lake Sanitary Dist.

941 N.W.2d 791

EXCEL UNDERGROUND, INC., Plaintiff and Appellee,

v.BRANT LAKE SANITARY DISTRICT, Defendant and Appellant.

Brant Lake Sanitary District, Plaintiff and Appellant,

v.Excel Underground, Inc. & Granite Re, Inc., Defendants and Appellees,Granite Re, Inc., Third-Party Plaintiff and Appellee,

v.Reed I. Olson & Melissa D. Fischer-Olson, Third-Party Defendants.

#28580

Supreme Court of South Dakota.

ARGUED FEBRUARY 20, 2019

OPINION FILED April 1, 2020

ELIZABETH S. HERTZ, VINCE M. ROCHE of Davenport, Evans, Hurwitz & Smith, LLP, Sioux Falls, South Dakota, HEATHER M. LAMMERS BOGARD of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP, Rapid City, South Dakota, JEROME B. LAMMERS of Lammers Kleibacker, LLP, Madison, South Dakota, Attorneys for appellants.

DANIEL K. BRENDTRO, Sioux Falls, South Dakota, Attorney for appellee Excel Underground, Inc.

JOSEPH A. NILAN, DAVID H. GREGERSON of Gregerson, Rosow, Johnson & Nilan, LTD, Minneapolis, Minnesota, WILLIAM P. FULLER of Fuller & Williamson, LLP, Sioux Falls, South Dakota, Attorneys for appellee Granite Re, Inc.

GREGORY WHEELER of Boyce Law Firm, LLP, Sioux Falls, South Dakota, Attorneys for appellee Schmitz Kalda & Associates.

TODD MEIERHENRY of Meierhenry & Sargent, LLP, Sioux Falls, South Dakota, Attorneys for amicus curiae Dakota Homestead Title Insurance Company and South Dakota Conservancy District.

KERN, Justice

[¶1.] In 2012, the Brant Lake Sanitary District (the District) contracted with Schmitz, Kalda, and Associates, Inc. (SKA) to engineer a sewer system and with Excel Underground, Inc. (Excel) to install it. After lengthy delays, the District terminated Excel’s contract, and Excel and the District sued each other for breach of contract. The District also sued Excel’s surety, Granite Re, Inc. (Granite). In response, Granite filed a third-party complaint for contribution, reimbursement, or indemnity against the owners of Excel—Reed Olson and Melissa D. Fischer-Olson. Additionally, the District filed a third-party complaint against SKA for contribution and indemnity.

[¶2.] Prior to trial, the court granted Excel’s motion to dismiss the District’s claim for liquidated damages. The court also granted SKA’s motion for summary judgment on the District’s third-party complaint against it and dismissed SKA from the suit. However, the court denied the District’s motion for summary judgment against Excel, and their claims against each other proceeded to a jury trial.

[¶3.] At the close of the evidence and over the District’s objection, the circuit court instructed the jury that SKA served as the District’s agent. The court also instructed the jury regarding the District’s statutory emergency bidding procedures. The jury returned a verdict in favor of Excel, and the District unsuccessfully moved for judgment notwithstanding the verdict or in the alternative, a new trial. The District appeals. We affirm.

Facts and Procedural History

[¶4.] The District is a public entity incorporated under the laws of the State of South Dakota. In 2012, the District decided to install a wastewater collection system (the Project) for residents near Chester, South Dakota, to replace individual septic tanks for approximately 200 homes and cabins located around Brant Lake. This low-pressure system was designed to take waste from each residence by a gravity sewer pipe to an individual grinder pump to process the waste into slurry for piping to a main line.

[¶5.] The Project required installation of two main-line branches surrounding the Lake. The branches were designed to join into a single line on the west side of the Lake, which would then drain into a sewage lagoon. To avoid disturbing the ground surface, the plans called for most of the piping to be installed using "directional boring" rather than open trenching. The District employed SKA to engineer the Project and awarded Excel, the lowest bidder, the installation contract. Granite issued a performance bond as a surety for Excel’s work. Reed Olson, owner of Excel, and his wife Melissa Fischer-Olson, executed a general agreement of indemnity, in which they agreed to hold Granite harmless for any loss as a result of the bond.

[¶6.] Excel’s contract began on May 30, 2012. The parties agreed to a December 30, 2012 deadline for substantial completion and a May 30, 2013 deadline for final completion. The contract included a liquidated damages clause, which, by its terms, attempted to anticipate the District’s damages if Excel delayed completion of the Project beyond the agreed-upon dates. Further, the contract provided that in the event of a delay, the District could hire a third party to complete the Project and recover the cost of completion from Excel.

[¶7.] The District issued a notice to proceed with construction on June 25, 2012. Delays in the construction schedule occurred almost immediately due to difficult terrain and the late arrival of critical supplies. Excel’s president, Reed Olson, sent a letter to the District expressing concerns about Excel’s ability to meet the December 30, 2012 substantial completion date. He requested an extension until May 31, 2013, with remaining cleanup to be completed in June. The District denied this request. As construction continued, the parties disagreed regarding change orders, payment schedules, Excel’s duty to supply troubleshooting services, and the Project’s price. For example, changes in the construction plans—specifically, the need to use open trenching around the residences in an area called Spawn’s Addition rather than proceeding with directional boring—contributed to the increased costs and delay. Issues also arose regarding selection of the proper hydraulic pressure testing formula for HDPE¹ pressure sewer pipelines after installation to ensure its proper performance.

[¶8.] As the project moved towards completion, Excel sent a letter to the District requesting that it send a punch list of uncompleted contract items.² The District did not send the list. In early January 2014, dozens of grinder stations began freezing. Excel, the District, and the grinder pump supplier disputed which business was responsible for troubleshooting services. Although the District allowed Excel to continue working on the Project until January 20, 2014, it ultimately gave Excel notice that it was terminating the contract because Excel had failed to meet the Project deadlines and requirements. Five days later, the District hired a replacement contractor to troubleshoot, inspect, and repair malfunctioning grinder pumps.

[¶9.] On January 19, 2014, Excel sued the District for breach of contract in Minnehaha County, alleging the District violated the express terms of the agreement and the implied duty of good faith and fair dealing. The complaint also named the supplier and manufacturer of the grinder pumps as defendants. In a separate action commenced in Lake County on February 20, 2014, the District brought suit against Excel and Granite for breach of contract. It requested, in part, liquidated and compensatory damages related to the completion of the contract. In response, Granite filed a third-party complaint against Reed Olson and Melissa D. Fischer-Olson seeking indemnification if the District succeeded in its claims.

[¶10.] Excel’s Minnehaha County action was transferred to Lake County, and the cases were consolidated. On March 5, 2014, the District declared the unfinished Project an emergency on the basis that it posed a threat to public health. By doing so, it was permitted to bypass the standard bidding procedures required of a public entity. On March 20, 2014, the District instructed its engineer, SKA, to obtain proposals from replacement contractors by April 2, 2014. However, when the District held its April 2, 2014 meeting, SKA was still soliciting bids. Five weeks later, on May 7, the District had one bidder and expected another by the end of the week. On May 22, SKA informed the District that two companies had submitted bids for the Project. That same day, the District hired Dakota Road Builders (DRB), the lowest bidder, to finish the Project. The new sewage system was not completed until fall 2015. In May 2014, the District notified Granite that it was making a claim against Excel’s bond. In that letter, the District contended that Excel failed to supply skilled workers and equipment during performance of the Project, failed to timely pay subcontractors, and disregarded SKA’s authority.

[¶11.] The pre-trial proceedings involved extensive discovery, including several motion hearings.³ In April 2016, the District filed a third-party complaint against SKA seeking indemnification and contribution for any liability due and owing as a result of Excel’s suit. Excel moved for partial summary judgment seeking dismissal of the District’s claim for liquidated damages, which the court granted, concluding that the District elected compensatory damages when it terminated Excel’s contract.

[¶12.] As trial approached, the court set a filing deadline for further dispositive motions. SKA moved for summary judgment, seeking dismissal of the District’s third-party complaint because neither the District nor Excel could prove SKA’s conduct caused delays in the Project’s completion. SKA argued that Excel’s expert witness, Michael Carr, could not state that trenching delayed the completion of the Project. Moreover, SKA contended that Excel failed to produce documents supporting its request for an increase in compensation for trenching. Further, SKA alleged it promptly modified the pipe testing standard upon Excel’s written request,⁴ and Excel did not produce evidence of damages related to the pipe testing standards.

[¶13.] Rather than oppose the motion, the District admitted nearly all of SKA’s material facts. According to the District, the facts asserted by SKA in its affidavits were consistent with the District’s theory of the case against Excel. However, the District argued that if summary judgment was granted to SKA,...