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U.S. Court Permits Quantum Meruit Claims for Work Not Controlled by Contract
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July 21, 2008
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By Bambo Obaro
Thelen Reid Brown Raysman & Steiner LLP
In two recent decisions by the U.S. Court of Appeals for the 8th Circuit, the court held that plaintiffs may recover on a quantum meruit claim even when there is a contract between the parties so long as the work performed was not controlled by the contract.
Steel Fabrication
The first case involved a dispute between a subcontractor and a fabricator. The fabricator contracted to fabricate two steel towers for the subcontractor, which was to erect them on a building’s roof in New York City. Each tower had a base plate that was 7 feet square and 2 inches thick. While the base plate was being welded to the first tower, it warped, and the warping could not be removed during final welding. The fabricator provided a letter to the subcontractor stating that the warping would not affect the base plate. The subcontractor paid the fabricator for the tower.
When the tower was erected, warping of the base plate caused gaps of ¾ to 1-1/16 inches between the base plate and the roof girders to which it was to be connected. The engineer of record rejected using procedures to flatten the base plate and required that a replacement tower be provided. The subcontractor directed the fabricator to fabricate a replacement tower. At the end of the project, the fabricator brought a quantum meruit claim for the fair value of the extra work required and accepted by the contractor.
The jury found in favor of the fabricator. The contractor appealed and the appellate court affirmed on the quantum meruit claims. Trinity Products, Inc. v. Burgess Steel, L.L.C., 486 F.3d 325 (8th Cir. 2007).
On the appeal, the contractor argued that erroneous instructions were given to the jury regarding requirements for recovering on a quantum meruit claim.
The appeals court noted that to recover on a quantum meruit claim, a plaintiff must plead and prove that: (1) it provided to defendant materials or services at the request or with the acquiescence of defendant; (2) those materials or services had a certain reasonable value; and (3) defendant, despite demands of plaintiff, has failed and refused to pay the reasonable value of those material and labor.
The jury was instructed that its verdict had to be for the contractor-defendant if it believed that the goods or services provided by the fabricator-plaintiff were not “extra work.” Extra work was defined to the jury as work of a nature not contemplated by the parties, not controlled by the original contract and not subject to written change orders between the fabricator and contractor.
The jurors also were instructed that their verdict must be for the contractor-defendant if they believed that the original north tower did not comply with the requirements of the contract and that, as a result, the replacement tower was required under the contract.
The court held that the trial court had correctly instructed the jury.
The appeals court wrote that the quantum meruit recovery turned on whether the fabricator had breached its contract. The court noted that this question involved two issues. One was whether the warped base plate was caused by faulty welding by the fabricator or by the engineer of record unreasonably specifying a 5/8-inch reinforcing fillet weld. The court noted that the applicable American Welding Society specification allowed for reinforcing fillet welds that “need not exceed” 3/8 of an inch. (The second tower and the replacement tower used fillet welds of only 5/16 of an inch.) The other issue was whether the engineer of record was unreasonable in refusing on-site repair of the original tower base and in insisting on a replacement tower. If the engineer of record was at fault on either issue, the court wrote, the fabricator had not breached its contract and had performed extra work in complying with an unreasonable demand to provide a replacement tower. Under such circumstance, the fabricator could recover in quantum meruit.
The appeals court noted that the jury had returned a verdict in favor of the fabricator on its quantum meruit claim. The appeals court held there was sufficient evidence to support the verdict and affirmed judgment on that issue.
Professional Services
The second case involved a dispute between an architectural and education facilities consulting firm with considerable experience in funding public school construction projects and a school district. They contracted in 1996. The district claimed the contract provided only for the firm to prepare a study of needed school facilities and to aid in obtaining passage of a bond issue to fund a new school building included in the plan. The firm contended the contract required it to employ the firm through completion of any resulting project or to pay for all services provided. The District Court found that the contract was “far from a model of clarity.”
After the contract was signed in 1996, the firm began working with the school district on a school facilities plan and on an effort to get a bond issue passed to finance a new school. In 1999, however, voters rejected the bond issue. The school district paid the firm for its fees.
In 2002, the school superintendent retired and a new superintendent was hired. The firm contacted the new superintendent and did extensive work on developing a revised financing plan for a new school and assisting the school district with another attempt to pass a bond issue. In November 2003, the district decided to present the matter to the voters. The firm’s work for the school district during the 2002-2004 period included other services, such as calculating the cost of altering the planned school building so that grades six through eight could be added in the future.
In February 2004, a tax increase was approved in an election. But the next month, the school district’s voters narrowly defeated the bond issue, without which the school district could not use the increased tax revenues to build the school. After the second election, the school district decided not to continue working with the firm and began negotiating an agreement with another architect. The school district informed the firm of the change in July 2004. In October 2004, voters approved the bond issue for construction of the new school.
When the firm learned of its termination, it demanded $200,000 in compensation from the school district. When agreement was not reached, the firm brought suit against the school district for breach of contract and unjust enrichment (quantum meruit). The District Court entered a $2,500 judgment in favor of the firm on the breach of contract claim and entered judgment for the school district on the unjust enrichment claim. The appeals court affirmed the judgment on the breach of contract claim but vacated and remanded on the unjust enrichment claim. Rambo Associates, Inc. v. South Tama County Community School District, 487 F.3d 1178 (8th Cir. 2007).
The appeals court noted the parties agreed that there was a valid contract between them and that the school district had authorized the firm to complete the facility planning study and to provide assistance with obtaining funding. But, the parties disagreed both as to how much the firm should be compensated for its work and whether the school district authorized the firm to perform other services for which it should be paid.
Regarding the scope of the contract between the parties, the appeals court held that the language of the agreement required school district authorization of work beyond the initial consultation phases and agreement on fees for such work. As a result, the court ruled that the school district was liable under the contract only for work that it authorized and for which a price was agreed.
The firm argued that the school district authorized it to perform other services beyond the scope of the initial consultation phases and that it was, therefore, entitled to compensation under the contract.
The court found that the firm may have performed additional work that was authorized by the school district. However, the court held that the firm could not recover compensation under the contract for services that did not fall under the initial consultation phase because the school district did not agree to a fee for that work, as required by the contract.
The firm argued that the school district was unjustly enriched by its work and thus was liable in quasi-contract for the considerable value (quantum meruit) of the work that the firm performed.
The court held that in order to recover for unjust enrichment, the plaintiff must plead a separate cause of action for relief in quantum meruit. The court also held that when there is a conflict between an express contract and an implied one, an express contract necessarily trumps the implied contract. For example, if there was an express contract to pay a certain amount for particular services rendered, a party cannot later bring a claim for quantum meruit for those same services because the express contract supersedes any such claims.
The appeals court concluded that the firm provided services not covered by the contract. It wrote: “[T]he whole point in this case is that there was no contract, at least no written one, to pay for the extra services that [the firm] rendered because the parties did not agree to the amount of fees payable for those services. Providing a quasi-contractual remedy in the case can therefore not conflict with the contract.”
The appeals court found that the firm did not act officiously in rendering the extra services. It acted at the request of the school district and thus was not a mere volunteer. As a result, the firm could recover on its quantum meruit claim – the recoverable value being the value of any work by the firm beyond that covered by the contract.
The appeals court remanded the case to the trial court to determine what extra services were provided and their value.
On remand of the quantum meruit claim, the District Court could not determine with any reasonable certainty what extra services outside the contract the firm performed or what their reasonable value was, in part because evidence of any extra services was intermingled with services provided pursuant to the contract. Accordingly, the District Court ruled that the firm was not entitled to recover in quantum meruit. 2007 WL 3286750 (N.D. Iowa 2007). The Court of Appeals affirmed. 512 F.3d 998 (8th Cir. 2008).
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For more information about the issues covered in this report, please contact Paul Berning in our San Francisco office at 415-369-7229 or at pwberning@thelen.com or contact your Thelen attorney. For more information about Thelen’s Construction and Government Contracts Department, click here.
©2008 Thelen Reid Brown Raysman & Steiner LLP
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