King Cnty. v. Vinci Constr. Grands Projets/Parsons RCI/Frontier-Kemper

188 Wash.2d 618

398 P.3d 1093

KING COUNTY, Respondent,

v.VINCI CONSTRUCTION GRANDS PROJETS/PARSONS RCI/FRONTIER-KEMPER, JV, a Washington joint venture, Defendant,Liberty Mutual Insurance Company, a Massachusetts corporation; Federal Insurance Company, an Indiana corporation; Fidelity and Deposit Company of Maryland, a Maryland corporation; Zurich American Insurance Company, a New York corporation; and Travelers Casualty Surety Company of America, a Connecticut corporation, Petitioners.

No. 92744-8

Supreme Court of Washington.

Argued Jan. 10, 2017

Filed: July 6, 2017

Catherine Wright Smith, Howard Mark Goodfriend, Smith Goodfriend PS, 1619 8th Ave. N., Seattle, WA, 98109-3007, Thomas R. Krider, Peter Noel Ralston, Oles Morrison Rinker & Baker LLP, 701 Pike St., Ste. 1700, Seattle, WA, 98101-3930, Mitchell C. Tilner, Frederic D. Cohen, Horvitz & Levy LLP, 15760 Ventura Blvd., 18th Floor, Encino, CA, 91436, for Petitioners.

Karl Francis Oles, David R. Goodnight, Hunter Olds Ferguson, Stoel Rives LLP, 600 University St., Ste. 3600, Seattle, WA, 98101-4109, Mary Devuono Englund, Office of the Prosecuting Attorney, 500 4th Ave., Ste. 900, Seattle, WA, 98104-2316, Leonard J. Feldman, Peterson Wampold Rosato Feldman Luna, 1501 4th Ave., Ste. 2800, Seattle, WA, 98101-3677, for Respondent.

R. Daniel Lindahl, Bullivant Houser Bailey PC, 888 S.W., 5th Ave., Ste. 300, Portland, OR, 97204-2017, as Amicus Curiae on behalf of Surety & Fidelity Association of America.

John P. Ahlers, Ahlers & Cressman PLLC, 999 3rd Ave., Ste. 3800, Seattle, WA, 98104-4023, Michael Porter Grace, Groff Murphy PLLC, 300 E. Pine St., Seattle, WA, 98122-2029, as Amicus Curiae on behalf of Construction Industry Trade Associations.

Daniel G. Lloyd, Sara E. Baynard-Cooke, City of Vancouver, P.O. Box 1995, 415 W. 6th St., Vancouver, WA, 98668-1995, as Amicus Curiae on behalf of Washington State Association of Municipal Attorneys.

Daniel G. Lloyd, Sara E. Baynard-Cooke, City of Vancouver, P.O. Box 1995, 415 W. 6th St., Vancouver, WA, 98668-1995, as Amicus Curiae on behalf of Association of Washington Cities.

Josh Weiss, WA State Ass'n of Counties, 206 10th Ave. S.E., Olympia, WA, 98501-1311, as Amicus Curiae on behalf of Washington State Association of Counties.

Michael Porter Grace, Groff Murphy PLLC, 300 E. Pine St., Seattle, WA, 98122-2029, Eileen I. McKillop, Sedgwick LLP, 600 University St., Ste. 2915, Seattle, WA, 98101-4172, John P. Ahlers, Lindsay K. Taft, Ahlers & Cressman PLLC, 999 3rd Ave., Ste. 3800, Seattle, WA, 98104-4023, as Amicus Curiae on behalf of Associated General Contractors of Washington.

Daniel Edward Huntington, Richter-Wimberley PS, 422 W. Riverside Ave., Ste. 1300, Spokane, WA, 99201-0305, Valerie Davis Mcomie, Attorney at Law, 4549 N.W. Aspen St., Camas, WA, 98607-8302, as Amicus Curiae on behalf of Washington State Association for Justice Foundation.

YU, J.

¶1 This case requires us to examine an award of attorney fees against five surety companies following a three-month jury trial for breach of contract in a public works project. The parties litigated the issue of whether three construction firms had defaulted on a contract, thus triggering coverage under a performance bond issued by the surety companies. At issue is whether the existence of a statutory fee provision bars equitable remedies available at common law for coverage disputes and whether the trial court correctly determined that segregation between covered and uncovered fees was impossible. The Court of Appeals affirmed the award of Olympic Steamship fees and held that the trial court did not abuse its discretion in determining that the fees could not be segregated. Olympic S.S. Co. v. Centennial Ins. Co., 117 Wash.2d 37, 811 P.2d 673 (1991). For the reasons discussed below, we now affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 The underlying facts are not at issue here, having been resolved by a jury trial and being unchallenged by petitioners on appeal. In 2006, King County contracted with three construction firms—Vinci Construction Grands Projets, Parsons RCI, and Frontier-Kemper JV (collectively VPFK)—to expand its wastewater treatment system. This expansionentailed the construction of a new treatment plant along with three new conveyance tunnels that would increase the treatment system's capacity to manage additional sewage from both Snohomish County and King County residents and businesses. Because the project would impact public health, the environment, and local economic growth, King County required substantial completion of the project by November 14, 2010.

¶3 VPFK won the bid to construct the second and third sections of the central tunnel, which together would measure 18 feet in diameter and 31,700 feet in length. Further, both sections of the tunnel were to be excavated concurrently. Under the terms of the contract, VPFK secured a performance bond from five surety companies: Liberty Mutual Insurance Company, Travelers Casualty and Surety Company of America, Federal Insurance Company, Fidelity and Deposit Company of Maryland, and Zurich American Insurance Company (collectively Sureties). If VPFK failed to perform under the terms of the contract, the performance bond obligated the Sureties to step in and "promptly remedy the default in a manner acceptable to [King County]." Clerk's Papers (CP) at 5542.

¶4 Throughout the project, VPFK encountered a number of difficulties with its equipment and management. At the time of its bid, VPFK estimated it could dig 57 feet per day on the longest tunnel, yet during the course of construction it averaged only 28 feet per day. VPFK's tunnel-boring machines broke down numerous times, including one nine-month delay during which VPKF attempted (and failed) to ease the tunnel's atmospheric pressure by removing groundwater before repairing the stalled machine. VPFK submitted numerous change orders and at one point agreed to establish a workshop of experts from various disciplines to " ‘mutually review all aspects of the tunneling operation to develop strategies for the remaining construction.’ " Id. at 7046.

¶5 When it became clear that VPFK was not "prosecuting the Work with sufficient diligence to achieve Substantial Completion within the Contract Time," King County declared VPFK to be in default and requested a corrective action plan that would ensure completion within the contract's deadline. Id. at 576. VPFK submitted its revised schedule to King County, estimating a completion date several years past the contract's deadline and at a significantly greater cost. As a result, King County entered into an interim agreement with VPFK to hire a different contractor to complete a portion of the work.

¶6 King County notified the Sureties of its plan and requested that the Sureties either cure VPFK's default themselves or agree to fund the new contractor. Instead, the Sureties argued that performance was not required under the bond because no breach had occurred. On April 19, 2010, King County filed suit against VPFK and one of the sureties, Travelers Casualty and Surety Company of America, claiming breach of contract and seeking declaratory relief that VPFK was in default and that the Sureties were joint and severally liable. The remaining four surety companies intervened, and together the Sureties, while denying coverage, also adopted all of VPFK's defenses against breach of contract.

¶7 At trial, the jury was asked to consider whether "VPFK was in default of its obligations under the Contract by failing to perform its work so as to ensure substantial completion by the Contract deadline" and whether "the Sureties breached their obligations under the Bond because the Sureties failed to pay King County's costs and expenses incurred because of VPFK's default."Id. at 9091. The jury found in favor of King County and awarded nearly $130 million in damages. Pursuant to Olympic Steamship, 117 Wash.2d 37, 811 P.2d 673, the trial court awarded King County its attorney fees and costs totaling nearly $ 15 million. The trial court further held that the fees could not be segregated because King County's claim against the Sureties was intertwined and indistinguishable from its claim against VPFK.

¶8 On appeal, the Sureties argued that Olympic Steamship did not apply because the fee provisions of RCW 39.04.240 are the exclusive fee remedy in public works contracts. Further, the Sureties disagreed with the trial court's determination that the fees could not be segregated, The Court of Appeals affirmed the award of fees, holding both that RCW 39.04.240 was not the exclusive fee remedy and that the fees could not be segregated. King County v. Vinci Constr. Grands Projets/Parsons RCI/Frontier-Kemper, JV, 191 Wash.App. 142, 184, 189, 364 P.3d 784 (2015). We granted the Sureties' petition for review and affirm. King County v. Vinci Constr. Grands Projets/Parsons RCI/Frontier-Kemper, JV, 186 Wash.2d 1008, 380 P.3d 459 (2016).

ISSUES

¶9 A. Is RCW 39.04.240, which applies the attorney fee award provisions of RCW 4.84.250 through RCW 4.84.280 to public works contracts, the exclusive fee remedy available in public works contract disputes where the primary issue is coverage?

¶10 B. Did the trial court err in determining that the award of attorney fees could not be segregated?

ANALYSIS

¶11 An award of attorney fees is an issue of law that this court reviews de novo. Durland v. San Juan County , 182 Wash.2d 55, 76, 340 P.3d 191 (2014). "Washington follows the American rule in awarding attorney fees." Dayton v. Farmers Ins. Grp., 124 Wash.2d 277, 280, 876 P.2d 896 (1994). Under the American rule, a court may award fees only when doing so is authorized by a contract provision, a statute, or a recognized ground in equity. Hamm v. State Farm Mut. Auto. Ins. Co., 151 Wash.2d 303, 325, 88 P.3d 395 (2004). One such equitable ground is the rule announced in Olympic Steamship. 117 Wash.2d at 53, 811 P.2d 673.

¶12 In Olympic Steamship , an insured warehouseman sought reimbursement...