Opinion
Nos. 61006-6-I; 61507-6-I.
December 29, 2008.
Appeals from a judgment of the Superior Court for King County, No. 06-2-33759-0, Christopher A. Washington, J., entered November 16, 2007.
Reversed and remanded by unpublished opinion per Dwyer, J., concurred in by Schindler, C.J., and Grosse, J.
Berg Holdings appeals the trial court's summary judgment order dismissing its construction defect lawsuit against Pinnacle Realty Management Company, as well as the related attorney fee award to Pinnacle. The trial court dismissed Berg's breach of contract claim against Pinnacle based solely on provisions in a Property Management Agreement (PMA) between Berg and Pinnacle purporting to require that Berg waive any claim against Pinnacle and that Berg indemnify Pinnacle for damage caused by Pinnacle's own conduct. On appeal, Berg contends that there is a disputed issue of fact as to whether the PMA — and thus the PMA's waiver and indemnity provisions — applied to Pinnacle's work. We agree and reverse the trial court's order. Because we conclude that an issue of fact exists concerning whether the PMA applies to the waterproofing services performed by Pinnacle, we do not reach the issue of whether the waiver and indemnity provisions in that agreement violate public policy. We do, however, address whether Pinnacle is prohibited from asserting those or any other contractual affirmative defenses based on its failure to register as a contractor. We conclude that it is not so barred. Finally, because we reverse the trial court's summary judgment order, we also reverse the related attorney fee award made to Pinnacle as the prevailing party.
I
Berg is the owner of Keeler's Corner, an apartment complex in Lynnwood. In February 1999, Berg entered into the PMA with Pinnacle. The PMA set forth the terms by which Pinnacle would manage Keeler's Corner on Berg's behalf.
Seven months after signing the PMA, Berg began major reconstruction on the Keeler's Corner complex. The project included the complete stripping and recladding of siding on the apartment buildings, as well as the reconstruction of waterproofing for the apartment decks. Berg retained Marx/Okubo Associates, Ltd. as its construction representative and employed USA Construction and Arne's Construction to repair and replace the siding on the entire complex. In conjunction with this work, Marx/Okubo discussed with Pinnacle whether Pinnacle could and would perform the deck waterproofing. Pinnacle employee Dan McDougal agreed to waterproof the decks.
The two memoranda excerpted below are the only written record of the parties' understanding regarding McDougal's work. The first memorandum was a facsimile sent from Greg Arnold of Marx/Okubo to Pinnacle representative Pat Stullick, a copy of which was also sent to Skip Berg, the owner of Berg Holdings:
I have spoken with Dan, the carpenter/waterproofer at the project about waterproofing the decking which has required removal and replacement. I don't have an exact amount of new deck surface which requires waterproofing at the buildings where work has proceeded and repairs have been made, although the amount is far greater than was anticipated, and far more than one man can handle on his own, as was the original intention. He indicated that he would be willing to hire one or perhaps two qualified applicators he used to work with, along with a couple/few unskilled laborers to accomplish the waterproofing. He is ready to proceed on this, although is concerned about bonding and insurance. I am wondering if he (and his workers) might do the work as maintenance workers/employees of Pinnacle. The other options include getting a bid from a waterproofing contractor, or letting Arne's Construction proceed with the waterproofing. I mentioned to Skip [Berg] that there is an employee of Arne's who used to be a waterproofing contractor, however, he is the only qualified applicator with Arne's Construction and would require more help. Both of these other options would be more expensive than having Dan do the work.
The second memorandum was another facsimile sent from Greg Arnold to Pat Stullick.
I spoke with Skip [Berg] this morning on the telephone. He wants Dan to start the waterproofing of the repaired deck/landings at Keeler's. We agreed that it was more a Property Management scope of work, in that Dan is currently under contract with Keeler's and Pinnacle.
Pinnacle and Berg did not enter into a separate written agreement setting forth the terms under which McDougal would perform the waterproofing work on Pinnacle's behalf.
McDougal's responsibilities included construction of flashing and related waterproofing systems at the interface of apartment decks and walls. That work often required the complete reconstruction of major portions of decks, including removing dry rot and wet plywood, performing framing repairs, and installing new plywood, flashings, and waterproof coatings. Neither McDougal nor Pinnacle nor any Pinnacle employee engaged in the waterproofing project was registered as a contractor.
After the project was completed and Pinnacle had ceased managing Keeler's Corner, Berg discovered evidence that led it to conclude that McDougal's waterproofing work may have been defective. A property damage report commissioned by Berg indicated that water was leaking into structural portions of the Keeler's Corner buildings and damaging them. Upon learning this, Berg initiated arbitration against USA Construction and Arne's Construction and this lawsuit against Pinnacle. Berg's complaint alleged that "[b]y contract dated February 28, 1999"-the PMA — "Pinnacle furnished certain work and services" to Berg which were "negligent and defective, and failed to conform to contract requirements."
Pinnacle moved for summary judgment against Berg's claims based solely on the terms of the PMA. The PMA included two provisions purporting to limit Pinnacle's liability associated with its management of Keeler's Corner. One provision stated that Berg would indemnify Pinnacle from any claims related to Keeler's Corner, except for those claims arising out of Pinnacle's "willful misconduct":
Indemnification for Injuries to Person and Property: Irrespective of whether Owner is negligent, Owner shall indemnify, defend and save Pinnacle harmless from any and all claims, proceedings or liability including but not limited to pollution or environmental, and all costs and expenses thereof (including, but not limited to, fines, penalties and reasonable attorney fees), for injuries or damages including economic losses, to persons and Owner, including any employee of Owner, or property including, but not limited to, those relating to or arising out of the premises of the Project, or in any manner resulting from or arising out of the performance by Pinnacle of its services under this Agreement, except for that which is caused by the willful misconduct of Pinnacle. To the extent permitted under controlling law, this obligation to indemnify includes claims caused by the sole negligence of Pinnacle.
In a second provision, Berg agreed to waive all claims against Pinnacle for damage to any property related to Keeler's Corner for any cause except for damage caused by Pinnacle's "willful misconduct":
WAIVER OF CLAIMS: Owner hereby waives any and all claims against Pinnacle, including Pinnacle's employees, agents, general partners and affiliates, for damage or injury to any property in, upon, or about the Project, including but not limited to, the premises of the Project, whether caused by peril, accident, theft or from any other cause whatsoever, other than solely caused by the willful misconduct of Pinnacle.
The PMA also included a provision for an award of attorney fees and costs to the prevailing party in any lawsuit:
LITIGATION: In the event that either party shall bring an action to enforce or to interpret the terms and provisions of this Agreement, the prevailing party in such action shall be entitled to receive court costs and the reasonable fees and expenses of attorneys and certified public accountants.
In response to Pinnacle's summary judgment motion, Berg altered the position originally stated in its complaint — i.e., that Pinnacle had furnished the waterproofing work pursuant to the terms of the PMA. Berg contended instead that, although an agreement existed between the parties concerning the provision of waterproofing work by McDougal, there was a disputed issue of fact concerning whether that agreement was the PMA or was, rather, some separate agreement resulting from the communications between Greg Arnold (acting as Berg's agent) and Pat Stullick (acting as Pinnacle's agent).
The trial court granted summary judgment to Pinnacle against Berg. Based on this order, the court also awarded Pinnacle attorney fees and costs as the prevailing party pursuant to the attorney fee provision in the PMA.
Berg appeals the summary judgment order and the attorney fee award under separate causes, which we have consolidated for purposes of this opinion.
II
A summary judgment order is reviewed de novo, and the appellate court performs the same inquiry as the trial court. We consider the facts and inferences from the facts in the light most favorable to the nonmoving party. We will affirm an order of summary judgment only if the pleadings, affidavits, and depositions establish that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c); Jones v. Allstate Ins. Co., 146 Wn.2d 291, 300-01, 45 P.3d 1068 (2002).
III
Berg first contends that the trial court erred by dismissing Berg's claims based on the waiver and indemnity provisions in the PMA because there is a genuine issue of material fact as to whether the terms of that agreement govern the waterproofing work performed by Pinnacle. We agree.
"A contract may be oral as well as written, and a contract may be `implied in fact with its existence depending on some act or conduct of the party sought to be charged.'" Hoglund v. Meeks, 139 Wn. App. 854, 870, 170 P.3d 37 (2007) (quoting Bell v. Hegewald, 95 Wn.2d 686, 690, 628 P.2d 1305 (1981)). A finder of fact may deduce mutual assent to an agreement from the circumstances surrounding a transaction, inferring the existence of a contract based on a course of dealings between the parties or a common understanding within a particular commercial setting. Hoglund, 139 Wn. App. at 870-71 (citing Bell, 95 Wn.2d at 691). "The existence of an implied contract is a question for the trier of fact." Kilthau v. Covelli, 17 Wn. App. 460, 462, 563 P.2d 1305 (1977) (emphasis added).
In order for us to affirm the trial court's summary judgment ruling against Berg, we must conclude that the facts in the record and the inferences from those facts unambiguously demonstrate that the parties intended the terms of the PMA to govern the waterproofing work in which McDougal engaged on Pinnacle's behalf. Put another way, in order to affirm the trial court's entry of summary judgment against Berg, we would have to conclude that the evidence presented to the trial court, viewed in the light most favorable to Berg, precludes any inference that when Pat Stullick committed Dan McDougal to act, in effect, as an unregistered waterproofing subcontractor on the construction project overseen by Marx/Okubo, no new agreement between the parties was formed.
This conclusion is not justified as a matter of law. It is certainly true that one inference that can be drawn from the communication from Greg Arnold to Pat Stullick stating that McDougal's services were to be "more a Property Management scope of work" is that the parties intended the terms of the written PMA, including its waiver and indemnity clauses, to govern McDougal's work. Another inference could also reasonably be drawn by the fact finder, however.
Specifically, a new and separate implied-in-fact oral agreement between Berg and Pinnacle could have been formed for the provision of waterproofing services related to the exterior renovations of Keeler's Corner, with the terms of that agreement defined by the prior course of dealings between the parties. As Berg correctly observes, nothing in the PMA describes any service by Pinnacle that can be considered to be construction activity. At the same time, the services performed for Berg by McDougal on Pinnacle's behalf could easily be considered by a fact finder to constitute construction activity rather than routine maintenance, as Pinnacle characterizes them. Berg's affidavits and McDougal's own deposition testimony confirm that McDougal did not simply apply a waterproof membrane to the Keeler's Corner apartment decks, but rather assisted with the complete reconstruction of the deck-to-wall interfaces, including removing and reinstalling lumber and installing flashings. Based on these facts, combined with the limitation of the PMA's terms to maintenance activities, the finder of fact could reasonably infer that, while the parties relied upon their course of dealings (i.e., their prior exchanges under the terms of the PMA) to provide the terms of compensation under a new agreement for the provision of construction services, the parties did not intend for that agreement to incorporate the entirety of the PMA, which was negotiated in relation to the provision of different services.
Similarly, the fact finder could reasonably infer from the negotiations between the parties as to whether McDougal would perform the waterproofing work (months after the finalization of the PMA) that the parties did not originally intend for the PMA to encompass such work. That is to say, there is a genuine issue of fact as to why, if the PMA's terms so obviously envisioned the type of waterproofing work done by McDougal, it was necessary for the parties to debate amongst themselves whether or not it was necessary to hire another contractor to perform the same service. The fact finder could reasonably arrive at the negative inference that large-scale deck waterproofing was not within the scope of the PMA from the fact that Berg had to request such services, rather than simply expecting that they would be undertaken incident to the existing agreement. For example, it is not at all clear from the record that Pinnacle would have been in breach of the terms of the PMA had Berg requested that Pinnacle engage in the waterproofing work and had Pinnacle refused this request. From this, the fact finder reasonably could conclude that the PMA did not obligate Pinnacle to engage in waterproofing and, thus, that McDougal's waterproofing work was undertaken pursuant to an agreement other than the PMA.
As a matter of law, the only evidence that Berg was required to put forward on summary judgment to create a factual issue concerning whether a separate, implied-in-fact agreement related to construction services existed was that (1) Berg requested work, (2) Pinnacle expected to be paid for that work, and (3) Berg knew or should have known that Pinnacle expected to be paid. Young v. Young, 164 Wn.2d 477, 486, 191 P.3d 1258 (2008). A finder of fact could conclude that Berg established these elements. Thus, a finder of fact could also conclude that an agreement other than the PMA was entered into in relation to the provision of waterproofing services by Pinnacle, notwithstanding the statement by Berg's agent that those services were part of a "Property Management scope of work."
Pinnacle contends that no new agreement could have been formed because Berg paid no additional consideration. We cannot determine from the record before us whether this assertion is correct. If McDougal provided services other than those described in the PMA and Pinnacle was directly or indirectly compensated as a result, additional consideration would exist. That is, the mere fact that a prior agreement established a procedure by which Berg customarily compensated Pinnacle for services rendered, and that that procedure was used to compensate Pinnacle for work performed by McDougal, does not preclude a finding that additional consideration was paid by Berg to Pinnacle for the provision of additional services. Whether such consideration exists here is a factual question, the answer to which is not provided by the affidavits that the trial court considered prior to entering summary judgment and which constitute the record before us on appeal. On remand, it is reserved to the fact finder to determine, based on the evidence presented, whether Berg provided Pinnacle with consideration to support an agreement other than the PMA.
If the fact finder determines that such an implied-in-fact agreement existed, it must also determine what the terms of the agreement were. In such an agreement, while the terms of compensation and the scope of work could be defined by the parties' course of dealings, any prospective waiver of claims could likely not be so defined. Breach of contract claims may be orally waived in Washington, Gorge Lumber Co. v. Brazier Lumber Co., 6 Wn. App. 327, 335-36, 493 P.2d 782 (1972), but it is well established that "waiver is the intentional and voluntary relinquishment of a known right." Bowman v. Webster, 44 Wn.2d 667, 669, 269 P.2d 960 (1954) (emphasis added). A finding of waiver in relation to claims arising under an implied-in-fact contract would be inappropriate in the absence of evidence establishing that the party alleged to have waived claims did so voluntarily and intentionally with respect to the subject of the agreement. This is unlikely where the agreement itself rests — at least in part — on the unspoken understandings of the parties.
Similarly, an implied-in-fact agreement between the parties based on their course of dealings could not incorporate a provision by which Pinnacle required indemnity from Berg for losses caused by Pinnacle's own conduct. This is so because, in order for such agreements to be construed in the indemnitee's favor, they must be written. By definition, an implied-in-fact agreement is not a written contract. Our Supreme Court has repeatedly made clear that "an indemnity contract will not be construed to indemnify the indemnitee against losses resulting to him through his own negligent acts where such intention is not expressed in unequivocal terms. . . . [C]lauses purporting to exculpate an indemnitee from liability for losses flowing from his own acts or omissions are not favored as a matter of public policy and are to be clearly drawn and strictly construed." Dirk v. Amerco Marketing Co. of Spokane, 88 Wn.2d 607, 612-13, 565 P.2d 90 (1977). We have consistently relied upon such rules in interpreting agreements to indemnify:
Indemnity clauses are subject to fundamental rules of contractual construction: the intent of the parties, which is controlling, must be gathered from the contract as a whole; construction of the agreement must be reasonable so as to carry out the purpose of the agreement; an ambiguity will not be read into a contract where there is none; and any ambiguities will be resolved against the drafter. Three additional principles apply to indemnity agreements:
(a) clauses which purport to exculpate an indemnitee from liability for losses flowing solely from his own acts or omissions are not favored and are to be clearly drawn and strictly construed, with any doubts therein to be settled in favor of the indemnitor; (b) such clauses are to be viewed realistically, recognizing the intent of the parties to allocate as between them the cost or expense of the risk of losses or damages arising out of performance of the contract; and (c) causation of loss is the touchstone of liability under a construction contract indemnity clause, rather than negligence, although negligence may be incidental to the cause.
Simons v. Tri-State Constr. Co., 33 Wn. App. 315, 322, 655 P.2d 703 (1982) (quoting Jones v. Strom Constr. Co., Inc., 84 Wn.2d 518, 520-21, 527 P.2d 1115 (1974)).
All of these rules of construction are applicable to written indemnity agreements, and would be nonsensical in the context of an implied-in-fact oral agreement. Such a contract has no written terms to construe — its existence and terms are found (or not found) as a factual matter. Because of this, we conclude that a course of dealings establishing an implied-in-fact agreement may not include a provision by which a party requires indemnity for damages caused solely by its own conduct. Accordingly, if the fact finder determines that such an agreement — rather than the PMA — was that which defined the conditions of Pinnacle's waterproofing work, the agreement necessarily would exclude any provision requiring that Berg indemnify Pinnacle.
In sum, there is a genuine issue of material fact concerning whether the parties entered into an agreement other than the PMA in relation to Pinnacle's provision of waterproofing services. This being the case, the trial court erroneously entered summary judgment against Berg based on the waiver and indemnity provisions in the PMA. It remains for the finder of fact to determine whether the PMA — and its written waiver and indemnity provisions — apply to the waterproofing work done for Berg by Pinnacle.
IV
Although we reverse because there is a factual issue concerning whether the PMA governed Pinnacle's waterproofing work, we address an additional issue raised by Berg's appeal. We do so because this issue has been fully presented by the parties and has significance to the outcome of this lawsuit regardless of the terms of the agreement under which Pinnacle performed waterproofing work for Berg. Berg contends on appeal that Pinnacle's failure to register as a contractor disables Pinnacle from asserting any aspect of an agreement to perform construction services as a defense to a construction defect lawsuit brought as a breach of contract action. This is an incorrect statement of the law and should not be relied upon on remand to bar the assertion of contractual affirmative defenses by Pinnacle, regardless of whether the fact finder determines that the PMA applies.
Pinnacle implies that it was not required to register by chapter 18.27 RCW. This is incorrect. The contractor registration statute broadly defines who is a "contractor," and the work performed by Pinnacle brings Pinnacle within that definition. RCW 18.27.010(1) ("`Contractor' includes any . . . who . . . undertakes to . . . improve . . . any building").
The basis of Berg's claim that Pinnacle may not assert contractual defenses (specifically, the PMA's waiver and indemnity clauses) is Berg's reading of RCW 18.27.080. RCW 18.27.080 provides that contractors who have failed to register may not sue to recover payments owed on completed construction contracts:
No person engaged in the business or acting in the capacity of a contractor may bring or maintain any action in any court of this state for the collection of compensation for the performance of any work or for breach of any contract for which registration is required under this chapter without alleging and proving that he was a duly registered contractor and held a current and valid certificate of registration at the time he contracted for the performance of such work or entered into such contract.
Berg contends that this statute also stands for the proposition that Pinnacle, not having registered as a contractor, may not now rely on contractual provisions as affirmative defenses in an action alleging construction defects brought against Pinnacle by Berg. See CR 8(c) ("waiver" listed as affirmative defense). According to Berg, Pinnacle's failure to register rendered the terms of any construction agreement between the parties illegal and unenforceable. Berg cites Davidson v. Hensen, 135 Wn.2d 112, 954 P.2d 1327 (1998), in support of this contention.
In fact, neither RCW 18.27.080 nor Davidson support Berg's position. RCW 18.27.080 says nothing about affirmative defenses raised pursuant to an agreement between a property owner and an unregistered contractor in a construction defect action brought by the property owner. Rather, the statute provides only that an unregistered contractor may not "maintain any action in any court of this state for the collection" of funds owing on a construction contract. Reading this language as a prohibition on unregistered contractors raising contractual affirmative defenses is pure extrapolation, creating a prohibition that appears nowhere in the text of the statute. If the legislature had intended to impose such a disability, it could have written it into the statute's text. It did not.
Contrary to Berg's reading of our Supreme Court's opinion in Davidson, that opinion also indicates that contractual affirmative defenses may be raised in response to actions brought against unregistered contractors by dissatisfied property owners. Davidson expressly rejected prior case law that stood for the proposition that chapter 18.27 RCW renders construction agreements between unregistered contractors generally illegal and thus "void ab initio." Davidson, 135 Wn.2d at 127-28 (rejecting lead plurality opinion in Vedder v. Spellman, 78 Wn.2d 834, 480 P.2d 207 (1971)). Specifically, Davidson upheld an arbitration award obtained pursuant to an arbitration clause in an unregistered contractor's construction contract. The court specifically considered and rejected a California case holding that a contractor's failure to register renders the construction contract illegal and void and thus requires rejection of arbitration awards obtained pursuant to a contract's terms. Davidson, 135 Wn.2d at 131-32 (declining to follow Loving Evans v. Blick, 33 Cal.2d 603, 204 P.2d 23 (1949)).
Davidson drew a clear distinction between contracts that are against public policy generally and those, like agreements with unregistered contractors, "in which some rights are preserved but may not be enforced by certain parties under certain circumstances." Davidson, 135 Wn.2d at 130. Because there is no indication in the text of chapter 18.27 RCW that the legislature intended to nullify the ability of unregistered contractors to defend against lawsuits brought pursuant to construction contracts, we conclude that the right to do so was preserved. "If a contract violates a business statute or regulation, the contract is not void unless the act expressly provides for invalidation of conflicting contract provisions." Smith v. Skone Connors Produce, Inc., 107 Wn. App. 199, 208, 26 P.3d 981 (2001) (citing Ritter v. Shotwell, 63 Wn.2d 601, 606, 388 P.2d 527 (1964); Fleetham v. Schneekloth, 52 Wn.2d 176, 180, 324 P.2d 429 (1958)).
Finally, we have previously upheld the use of an affirmative defense by an unregistered contractor — that the contracted-for work was actually performed — in an action brought by a property owner for reimbursement under the contract. Anderson v. Frandsen, 36 Wn. App. 353, 356, 674 P.2d 208 (1984) ("We hold that RCW 18.27.080 only prohibits actions brought by the contractor; it does not prevent an unlicensed contractor from claiming that he performed work as a defense to a claim for reimbursement."). While the defense raised in Anderson was not the assertion of an express contractual provision, our acceptance of its applicability reflects our understanding that the disability imposed by RCW 18.27.080 is limited in scope.
Berg fails to demonstrate that chapter 18.27 RCW prohibits Pinnacle, as an unregistered contractor, from raising contractual affirmative defenses.
V
Because we reverse the trial court and remand for a factual determination regarding whether the PMA applies to the waterproofing work performed by Pinnacle, we decline to decide whether the waiver and indemnity provisions in the PMA are unenforceable as a matter of public policy. Likewise, we decline to decide whether any property damage that may have resulted from Pinnacle's allegedly defective waterproofing work constituted "willful misconduct" under the terms of the PMA.
VI
Because the trial court erroneously entered summary judgment in Pinnacle's favor, the related attorney fee award to Pinnacle as the prevailing party was likewise erroneous and is also reversed. Similarly, because no party has yet prevailed on the merits in this action, an award of attorney fees on appeal would be premature. See Home Realty Lynnwood, Inc. v. Walsh, 146 Wn. App. 231, 242, 189 P.3d 253 (2008) (reversal of summary judgment renders "determination of the prevailing party . . . premature" for purposes of contractual attorney fee award).
Reversed and remanded.
We Concur: