Facilities Cost Mgmt. Grp., LLC v. Otoe Cnty. Sch. Dist. 66-0111

868 N.W.2d 67

Facilities Cost Management Group, LLC, appellee and cross-appellant

v.Otoe County School District 66–0111, also known as Nebraska City Public Schools, appellant and cross-appellee.

No. S–14–380

Supreme Court of Nebraska.

Filed August 21, 2015

Larry E. Welch, Sr., Larry E. Welch, Jr., and Damien J. Wright, of Welch Law Firm, P.C., Omaha, for appellant.

Steven E. Achelpohl and John A. Svoboda, of Gross & Welch, P.C., L.L.O., Omaha, for appellee.

Heavican, C.J., Wright, Connolly, McCormack, Miller–Lerman, and Cassel, JJ.

Syllabus by the Court

1. Summary Judgment.An appellate court will affirm a lower court's

grant of summary judgment if the pleadings and admitted evidence show that there is no genuine issue as to any material facts or as to the ultimate inferences that may be drawn from the facts and that the moving party is entitled to judgment as a matter of law.

2. Contracts.The meaning of a contract and whether a contract is ambiguous are questions of law.

3. Judgments: Appeal and Error.When reviewing questions of law, an appellate court has an obligation to resolve the questions independently of the conclusion reached by the trial court.

4. Jury Instructions: Appeal and Error.Whether a jury instruction is correct is a question of law, which an appellate court independently decides.

5. Contracts.In interpreting a contract, a court must first determine, as a matter of law, whether the contract is ambiguous.

6. Contracts.A contract written in clear and unambiguous language is not subject to interpretation or construction and must be enforced according to its terms.

7. Contracts: Words and Phrases.A contract is ambiguous when a word, phrase, or provision in the contract has, or is susceptible of, at least two reasonable but conflicting interpretations or meanings.

8. Contracts.The meaning of an ambiguous contract is generally a question of fact.

9. Contracts.Extrinsic evidence is not permitted to explain the terms of a contract that is not ambiguous.

10. Contracts: Intent.When a contract is unambiguous, the intentions of the parties must be determined from the contract itself.

11. Contracts.A court is not free to rewrite a contract or to speculate as to terms of the contract which the parties have not seen fit to include.

12. Contracts.When a court has determined that ambiguity exits in a document, an interpretive meaning for the ambiguous word, phrase, or provision in the document is a question of fact for the fact finder.

13. Contracts: Parol Evidence.A written instrument is open to explanation by parol evidence when its terms are susceptible to two constructions or where the language employed is vague or ambiguous.

14. Jury Instructions: Proof: Appeal and Error.In an appeal based on a claim of an erroneous jury instruction, the appellant has the burden to show that the questioned instruction was prejudicial or otherwise adversely affected a substantial right of the appellant.

NATURE OF CASE

MILLER–LERMAN, J.

Otoe County School District 66–0111, also known as Nebraska City Public Schools (the District), and Facilities Cost Management Group, LLC (FCMG), entered into a contract wherein FCMG would provide architectural, representative, and managerial services in connection with the construction and renovation of three schools within the District. FCMG filed an amended complaint in the district court for Douglas County against the District, alleging that the District had breached the contract by failing to pay the full amount due under the contract, and FCMG sought approximately

$2 million in damages. The parties filed cross-motions for partial summary judgment; the District generally argued that the contract was ambiguous, specifically sections 11.2 and 12.7, and FCMG generally argued that the contract was not ambiguous. The district court granted FCMG's motion and denied the District's motion based upon its determinations that sections 11.2 and 12.7 were not ambiguous due to their language and the parties' course of dealings.

After a jury trial, the district court entered judgment on the jury's verdict for FCMG in the amount of $1,972,993. The district court denied the District's motion for judgment notwithstanding the verdict or for new trial. The District appeals, and FCMG cross-appeals. We determine that the district court did not err when it determined that section 12.7 of the contract is not ambiguous, but it erred when it determined that section 11.2 is not ambiguous. Accordingly, the court committed prejudicial error when it gave jury instruction No. 2, which stated that “the contract in this case is not ambiguous.” As explained below, we reverse, and remand for a new trial.

STATEMENT OF FACTS

The threshold issue presented in this appeal is whether sections 11.2 and 12.7 of the contract are ambiguous. The contract is based on a 1987 version of the American Institute of Architects' “Standard Form of Agreement Between Owner and Architect.” As the Court of Special Appeals of Maryland has observed:

The standard form contracts drafted by the [American Institute of Architects (AIA) ] are widely used. One author has stated that the AIA documents are the most widely used standard form contracts in the construction industry. See 1 Steven G.M. Stein, Construction Law, ¶ 3.02[1][b] (Matthew Bender 1999) (footnote omitted) (stating that AIA forms “have the longest history and are the most widely used and well known of the standard forms.”).

Notre Dame v. Morabito , 132 Md.App. 158, 174, 752 A.2d 265, 273–74 (2000). However, the parties customized some sections of the contract, including sections 11.2 and 12.7 at issue in this case. The contract defines the District as the “Owner” and FCMG as the “Architect” even though the activities of FCMG were not limited to architectural services.

Pertinent sections of the contract are quoted below. Section 11.2, one of the customized provisions of the contract, is titled “BASIC COMPENSATION ,” and it provides:

Fees shall be as outlined in the attached Recommended Compensation schedule as applicable to each component facility of the Project and shall be included in various categories of the Project Budget for Basic Services for Site and Construction work, Master Planning, Equipment, Additional Services for Remodeling and Additions, and Contingency allowances. Corresponding Project Reimbursable Expenses and costs for [the District's] Representative/Project Management services shall also be paid as included in the Project Budget. These fees and costs are intended to be converted to Lump Sum amounts with the initial approval by the [District] and [FCMG] of the Project Scope, Budget, and concept to be advanced for funding. Lump Sum amounts and inclusions shall remain effective for the duration of the Project(s), except in the event of approved changes in the scope of work or alternatives to be bid adding two percent or more to the scope. In such event the Lump Sum fees and costs shall be increased proportionately to reflect the full percentage of changes.

A grid is attached to most copies of the contract in the record. The grid appears to be a schedule of fees for various services.

Section 12.7, another customized provision of the contract, is titled “RESPONSE TO DISTRICT'S REQUEST FOR PROPOSAL ,” and it provides:

The Architect's Response to the District's Request for Proposal is attached to this Agreement for general reference purposes including overviews of projects and services. [The District's] approvals following execution of this Agreement and related to the scope of work on the individual projects and corresponding portions of Project Budgets during the various Phases shall incorporate applicable adjustments through the projects [sic] development.

The “Architect's Response to the District's Request for Proposal” referred to in section 12.7 is not attached to any copy of the contract in the record, and there is no such document bearing the title “Architect's Response to the District's Request for Proposal.” The parties may have been referring to exhibit 72, which is FCMG's 72–page proposal submitted in response to the District's request for proposals, and possibly in addition, exhibit 19, which is 21 pages of questions and answers exchanged between the parties.

With respect to the background facts of this case, in March 2007, the District issued a request for proposals in connection with the construction and renovation of three schools within its school district. In response to the District's request for proposals, FCMG submitted its proposal dated March 29, 2007. FCMG's proposal is in the record as exhibit 72. In its proposal, FCMG stated that it was to serve as the project's architect, the District's representative, and the project's manager. Specifically, the proposal stated:

FCMG is not a traditional architectural firm. We specialize as independent Owner's Representatives for program and project development and management services. From this independent perspective, we offer your District an opportunity to better control the costs, extended function, and flexibility within the proposed facilities. We have the unique ability to offer guaranteed maximum cost options to assure that the bonds requested and approved by the voters will do the job ... so that they know before they vote what they will receive ... and also know that the quality will be consistent with today's version of the Middle School success.

With respect to rates for the project, FCMG's proposal stated:

FCMG negotiates its fees with its clients in order to provide the best value for the dollar and to respond directly to the nature of the actual projects selected to be funded or further developed. We utilize Lump Sum fees which are incorporated in the projects [sic] budgets. The examples in this Response each include allowances for all fees and expenses.

....

We guarantee that the aggregate fees of our firm together with the Technical Services Consultants will not exceed typically published guidelines for full Basic Services of the

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