Decker Electric v. Pratt Regional Medical Center Corp.

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NOT DESIGNATED FOR PUBLICATION

No. 119,542

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

DECKER ELECTRIC, INC.,
Appellant,

v.

PRATT REGIONAL MEDICAL CENTER CORPORATION,
Appellee.

MEMORANDUM OPINION

Appeal from Pratt District Court; FRANCIS E. MEISENHEIMER, judge. Opinion filed December 20,
2019. Affirmed.

Jeffery L. Carmichael, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita, for
appellant.

Wyatt A. Hoch, of Foulston Siefkin LLP, of Wichita, and David R. Green, of the same firm, of
Overland Park, for appellee.

Before LEBEN, P.J., GARDNER, J., and MCANANY, S.J.

PER CURIAM: This appeal considers the rights of a subcontractor to seek payment
for extra work directly from the owner of a construction project based on a theory of
unjust enrichment. The project was to remodel and expand the Pratt Regional Medical
Center. The medical center is owned by the Pratt Regional Medical Center Corporation
(PRMC). PRMC engaged Health Facilities Group LLC (HFG) to serve as the architect.
Hutton Construction Company (Hutton) was the general contractor on the project. It
subcontracted with Decker Electric, Inc. (Decker) to perform the electrical work.

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Decker claimed that PRMC requested Decker to perform additional work which
was not included in Decker's subcontract with Hutton. When only some but not all of
Decker's requests for change orders were paid, Decker sought relief in the form of a
judgment for unjust enrichment against PRMC. In due course, PRMC moved for
summary judgment on Decker's claim, and the court granted judgment to PRMC. It is
that ruling that brings the matter to us for our de novo review.

Review Standards

The standards for summary judgment and our review are well known and oft
repeated:

"'Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and when we find reasonable
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied.' [Citation omitted.]" Patterson v. Cowley County, Kansas, 307 Kan. 616,
621, 413 P.3d 432 (2018).

The party opposing summary judgment need not prove its case, but it has "the
affirmative duty to come forward with facts to support its claim." Hurlbut v. Conoco,
Inc., 253 Kan. 515, 520, 856 P.2d 1313 (1993). An issue of fact is not genuine unless it
has legal controlling force as to the controlling issue. A disputed question of fact which is
immaterial to the issue does not preclude summary judgment. In other words, if the
disputed issue of fact, however resolved, could not affect the judgment, it does not
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present a "genuine issue" for purposes of summary judgment. Northern Natural Gas Co.
v. ONEOK Field Services Co., 296 Kan. 906, 934, 296 P.3d 1106 (2013); Sanchez v.
U.S.D. No. 469, 50 Kan. App. 2d 1185, 1192, 339 P.3d 399 (2014).

Scope of Our Review

PRMC claimed before the district court that it was entitled to summary judgment
on Decker's claim for three reasons:

(1) The remedy of unjust enrichment is not available to Decker because Decker
settled with Hutton for additional compensation. The district court rejected this
argument, finding that in the settlement agreement with Hutton, Decker did not
waive its claims against PRMC for additional work requested by PRMC.

(2) PRMC was not unjustly enriched because it paid Hutton the guaranteed
maximum price under its contract with Hutton. The district court also rejected
this argument, finding that the fact that PRMC paid the guaranteed maximum
price under the contract does not preclude a claim for unjust enrichment.

(3) Decker was not in privity of contract with PRMC and cannot establish the
elements of unjust enrichment because Decker cannot show that PRMC
committed fraud or promised to pay Decker directly for the additional work.
The district court based its ruling on this claim. The court ruled that Decker
was prohibited as a matter of law from recovering on a claim for unjust
enrichment because there was no privity of contract between Decker and
PRMC, and PRMC did not separately agree to pay Decker directly. Further,
the court found that PRMC did not mislead Decker or induce Decker to change
its position beyond what was contemplated by the contract.

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Neither party claims the district court erred in ruling on issues (1) or (2). PRMC
has not filed a cross-appeal. The only claim of error is Decker's claim that the district
court erred in granting summary judgment based on issue (3). Accordingly, in our de
novo review we will concern ourselves only with PRMC's last summary judgment
argument.

Uncontroverted Facts

Turning to the statements of uncontroverted facts as they relate to issue (3), we
note that under Supreme Court Rule 141(e) (2019 Kan. S. Ct. R. 211) we need not
consider parts of the record unless they have been cited in the parties' briefs. In line with
that provision, we will consider only the facts that are uncontroverted in the parties' briefs
before the district court. Claimed uncontroverted facts asserted by one party that are
controverted by the other party are relevant only to the extent that they create a genuine
issue of material fact requiring a final resolution at trial.

Based on Decker's response to PRMC's initial statement of uncontroverted facts, it
is undisputed that Hutton, the general contractor, served as the "Construction Manager at-
Risk" for the project. PRMC agreed to pay Hutton based on cost plus a fee with a
guaranteed maximum price of $23,743,622, adjusted by any approved change orders.
Hutton subcontracted with Decker to perform the electrical work on the project and
agreed to pay Decker for its work to the extent that Hutton was paid by PRMC for
Decker's work. Hutton and Decker agreed to cooperate in presenting Decker's claims for
additional work to PRMC for payment. PRMC contracted with HFG to serve as architect
on the project. HFG served as the initial decision-maker on claims for additional work.

Over the course of the project, disputes arose between Hutton and Decker over
amounts owed Decker for additional work over and above the $3,199,949 Decker had
already been paid. In an effort to resolve the dispute, Hutton, on Decker's behalf,
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submitted 58 proposed change orders to HFG requesting $332,349 in additional
compensation.

Hutton and Decker ultimately settled their dispute by Hutton paying Decker
$354,320 in retainage that Hutton was holding on the subcontract. Decker also was to
receive whatever funds Hutton received from PRMC for work performed by Decker.

HFG approved some of the proposed change orders for Decker's extra work and
denied the rest, resulting in a $121,166 increase in the guaranteed maximum price.
PRMC retained $174,425.29 of the total contract price to cover work on punch list items
needed to complete the project.

In its response to the motion, Decker set forth 44 additional facts which related to
Decker's unjust enrichment claim. All but two were uncontroverted. We summarize the
key points as follows:

Many of the problems on the project were caused by drawings—particularly the
mechanical drawings—being completed months after the actual work was done. Decker's
change order requests involved in this suit were for work not part of the original contract
or drawings.

At the beginning of the project PRMC and Hutton each had a contingency fund.
Those funds were depleted early in the project, possibly before the foundations had been
completed, due to problems with the mechanical design.

HFG was charged with making the initial decision on change orders. In
considering change orders, HFG's job was to decide whether to increase the guaranteed
maximum price in Hutton's contract with PRMC and what amount Hutton should be paid.
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HFG knew the contingency funds that were to pay Decker's change order requests were
depleted, but it never passed this information on to PRMC.

HFG was PRMC's agent, at least to the extent that, under PRMC's contract with
Hutton, HFG had the authority to bind PRMC regarding matters requiring PRMC's
approval as set forth in the contract documents.

PRMC was passive and not informed when it came to claims for additional work.
All of that was left to HFG. PRMC did not know whether there were funds available in
either of the contingency funds to pay for change orders. With respect to Decker's change
orders that HFG denied, PRMC did not know how Decker was asked to do the work or
whether the work was included in the original plans on which Decker based its bid.

Decker's work, for which change orders were refused, conferred a benefit on
PRMC, and PRMC retained the benefit of that work. PRMC's reason for not paying
Decker on these requested change orders was, "We agreed to a guaranteed maximum
price with Hutton and we have paid that."

In its reply, PRMC attempted to assert three more claimed uncontroverted facts.
But Supreme Court Rule 141 does not provide for additional uncontroverted facts in a
reply brief, and there is no provision in the rule that would permit Decker to file a
surreply which could address these newly claimed facts. But because these new facts are
simply quotations from the contract documents, we will consider them as part of the legal
argument to the extent they are raised by the parties.

Finally, Decker sought to supplement the record on appeal with deposition
testimony from Susan Page, a PRMC executive; an affidavit from Blaine Clark, one of
Decker's owners; and documentary evidence in the form of minutes of periodic meetings
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between PRMC, Hutton, and the various subcontractors. Even if we were to consider
them, they would not have any significant effect in our analysis.

Analysis

As a threshold matter, Decker claims that PRMC did not comply with Supreme
Court Rule 141's requirement that it state "concisely, in separately numbered paragraphs,
the uncontroverted contentions of fact on which the movant relies" and that for each fact
it set forth the "precise references to pages, lines and/or paragraphs . . . on which the
movant relies." Rule 141(a)(1)-(2).

Decker would have PRMC prove the negative and cite in the record where it can
be found that Decker has not submitted facts to support a claim of unjust enrichment. In
its brief in support of its motion, PRMC cited Haz-Mat Response, Inc. v. Certified Waste
Services Ltd., 259 Kan. 166, 177, 910 P.2d 839 (1996), and argued: "Decker has not
alleged that PRMC misled Decker, induced Decker to change its position, or acted
fraudulently toward Decker (nor is PRMC aware of any evidence that would support such
an allegation)." This assertion put Decker on notice of PRMC's argument that Decker
lacked evidence on essential elements of its claim. This shifted to Decker "'the
affirmative duty to come forward with facts to support its claim.'" Drouhard-Nordhus v.
Rosenquist, 301 Kan. 618, 623, 345 P.3d 281 (2015). Decker responded with 44
additional facts which related to Decker's unjust enrichment claim; 42 of those additional
facts are uncontroverted. We are satisfied that PRMC complied with Supreme Court Rule
141.

As a general rule, unjust enrichment is predicated on proof of: "'(1) a benefit
conferred upon the defendant by the plaintiff; (2) an appreciation or knowledge of the
benefit by the defendant; and (3) the acceptance or retention by the defendant of the
benefit under such circumstances as would make it inequitable for the defendant to retain
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the benefit without payment of its value.'" Haz-Mat Response, 259 Kan. at 177. But when
the claim is asserted by a subcontractor who is not in privity with an owner of property
who has benefited from the subcontractor's work on the owner's property, the
circumstances on which liability can be predicated are limited to the following:

"[A]n essential prerequisite to such liability is the acceptance by the owner (the one
sought to be charged) of benefits rendered under such circumstances as reasonably notify
the owner that the one performing such services expected to be compensated therefor by
the owner. In the absence of evidence that the owner misled the subcontractor to his or
her detriment, or that the owner in some way induced a change of position in the
subcontractor to his or her detriment, or some evidence of fraud by the owner against the
subcontractor, an action for unjust enrichment does not lie against the owner by a
subcontractor." Haz-Mat Response, 259 Kan. at 178.

It appears that the parties followed the traditional protocol in construction projects
for handling requested change orders for additional work. The owner makes a request for
additional work to the general contractor, the party with whom it has a contractual
relationship. The general contractor then directs its subcontractor to do the work, and the
general contractor requests a change order from the owner, increasing the contract price
to accommodate the cost of the extra work. The general contractor then pays its
subcontractor for all approved change orders.

Hutton and PRMC were operating under a contract with a guaranteed maximum
price. Hutton submitted a multitude of change order requests for extra work performed by
Decker. Some of the requests were approved, resulting in PRMC agreeing to increase the
guaranteed maximum price so as to allow sufficient funds for Hutton to reimburse
Decker for the work. But some of the requested change orders were denied. According to
PRMC, this was because "[w]e agreed to a guaranteed maximum price with Hutton and
we have paid that." Decker's claim for unjust enrichment is based on change order
requests that PRMC denied.
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As we read Haz-Mat Response, every subcontractor seeking recovery directly
from the owner of the project for extra work must show that the work was done under
circumstances that reasonably notified the owner that the subcontractor expected the
owner to pay directly for the work. Moreover, the subcontractor must show one of the
following: (1) the owner misled the subcontractor to his or her detriment, (2) the owner
induced the subcontractor to change its position to its detriment, or (3) the owner
defrauded the subcontractor. See Haz-Mat Response, 259 Kan. at 178.

Under K.S.A. 2018 Supp. 60-209(b), fraud must be pled with particularity. A close
reading of Decker's petition discloses no such claim. Nor does Decker claim that PRMC
misled or induced it to perform work by promising to pay Decker directly. Had PRMC
promised to pay Decker directly for the extra work, there would have been privity of
contract between Decker and PRMC and this action would be for PRMC's breach of
contract, not a claim of unjust enrichment.

The circumstances Decker relies on to establish its unjust enrichment claim center
on the depletion of contingency funds maintained by Hutton and PRMC. According to
the uncontroverted facts, PRMC had a guaranteed maximum price contract with Hutton.
At the beginning of the project, PRMC and Hutton each had a contingency fund. But
those contingency funds were depleted at some unspecified time early in the project, at
least before the disputed change order requests were submitted to HFG. Though there
was no dispute that Decker did the extra work in a satisfactory fashion, these requested
change orders were denied because there were no funds available in the contingency
funds and the guaranteed maximum price, which already had been increased by
$121,166, had been reached.

Having paid the guaranteed maximum price does not insulate PRMC from a claim
of unjust enrichment, as the district court found with regard to PRMC's second claimed
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justification for summary judgment. But Decker still has to come forward with evidence
which establishes the overall circumstances that support its claim that it reasonably
expected to be paid by PRMC directly and that PRMC was on notice of this expectation.
It is true that in Decker's settlement with Hutton, it did not waive its claims against
PRMC. But when Decker undertook the extra work, the settlement with Hutton had not
occurred. When Decker settled its dispute with Hutton, Decker was in the process of
following the normal change order procedure which had already begun regarding its
claims for extra work on the project. Prior to that time—when the extra work was
actually being performed—Decker had not conveyed to PRMC any expectation that it
was looking to PRMC directly for payment as opposed to looking to its contracting
party—Hutton. When Decker settled its dispute with Hutton after the work was done and
the change order requests were still pending, Decker acknowledged that it would take
whatever PRMC in its discretion may pay.

On appeal, Decker asserts new facts to oppose PRMC's motion. It argues that
PRMC attended and participated in numerous project meetings where changes in the
scope of Decker's work were discussed and agreed upon. These new facts were first
raised at the oral argument before the district court on PRMC's motion. The support for
this new argument is found in the deposition testimony of PRMC executive Susan Page
and an affidavit from one of Decker's owners, Blaine Clark, made after briefing on
PRMC's summary judgment motion was completed. Page recalled meetings held on a
regular basis—probably every other week—on the job site. But as discussed earlier, there
is no claim that PRMC committed to Decker that it would pay for any extra work, and
Page does not state otherwise. Clark states in his affidavit that because the contingency
funds had been exhausted, PRMC was the only source for payment and Decker did the
extra work expecting PRMC to pay for it. This, of course, ignores the fact that when the
contingency funds were depleted PRMC still paid certain claims by increasing the
guaranteed maximum price in the contract by $121,166.

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The problem with these newly asserted facts, even if we were to consider them, is
that to create liability under a theory of unjust enrichment, Haz-Mat Response requires
that the circumstances under which Decker performed the work put PRMC on notice that
Decker expected PRMC to pay for the work.

There is nothing to indicate that the circumstances here deviated from the normal
protocol in handling requests for extra work on a construction project. The owner
requests that the general contractor perform extra work. The general contractor delegates
that responsibility to the appropriate subcontractor who does the work. The general
contractor, based on information provided by the subcontractor, submits a request for a
change order to the owner's representative in order to increase the overall contract price
to accommodate the extra work and to allow the general contractor to pay the
subcontractor for the work performed. In this process, it is the general contractor's
responsibility to pay the subcontractor, not the owner's.

Here, at the time Decker undertook to perform extra work, there is nothing to
indicate that Decker—from the outset—expected PRMC to pay directly. Nor is there any
evidence to suggest that PRMC was on notice that rather than following the normal
protocol for processing payments for work done on the project, Decker expected payment
directly from PRMC for the extra work performed.

Decker and Hutton entered into a settlement agreement that precluded action by
Decker against Hutton for the extra work performed at Hutton's direction. Thus, Decker
looked to PRMC for relief. Decker now claims, through the affidavit of Blaine Clark, that
because the contingency funds had been exhausted PRMC was the only source for
payment and Decker did the extra work expecting PRMC to pay for it. But this is not
evidence that PRMC was on notice that, in spite of the fact that the normal protocol for
handling change order requests was followed, Decker was expecting PRMC to deviate
from that procedure and pay Decker directly for the work, which is a prerequisite for
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recovery under Haz-Mat Recovery. The fact that Decker's separate settlement agreement
precluded it from pursuing Hutton, its contracting party, does not require PRMC to step
in and pay Decker directly.

Decker has not come forward with evidence that PRMC misled Decker, induced
Decker to change its position beyond the terms of the relevant contract, or committed
fraud, as required by Haz-Mat Response. The district court did not err in granting
PRMC's motion for summary judgment.

Affirmed.