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Black Hills Excavating Servs., Inc. v. Retail Constr. Servs., Inc.

Supreme Court of South Dakota

March 9, 2016

RETAIL CONSTRUCTION SERVICES, INC., Defendant, Third-Party Plaintiff and Appellee,
MITCHELL E. MORRIS, Third-Party Defendant

         Considered on Briefs November 30, 2015


         STEVEN T. IVERSON, THOMAS E. BRADY of Brady Pluimer, P.C., Spearfish, South Dakota, Attorneys for plaintiff and appellant.

         EDWARD C. CARPENTER, STEPHEN C. HOFFMAN of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP, Rapid City, South Dakota, Attorneys for defendant, third-party plaintiff and appellee.

         SEVERSON, Justice. GILBERTSON, Chief Justice, and ZINTER and WILBUR, Justices, and PARDY, Circuit Court Judge, concur. PARDY, Circuit Court Judge, sitting for KERN, Justice, disqualified.


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          SEVERSON, Justice

          [¶1] Retail Construction Services, Inc. (RCS) and Black Hills Excavating, Inc. (BHE) entered into three subcontract agreements whereby BHE agreed to perform construction services for RCS. BHE brought this suit and asserted that RCS breached the contracts by ejecting BHE from the projects. RCS counterclaimed

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against BHE. It also filed a complaint against BHE's president Mitch Morris, alleging that he was personally liable for BHE's actions. After a trial to the court, the circuit court awarded damages for breach of contract to RCS. It did not impose personal liability on Morris. BHE appeals a number of issues and RCS has filed a notice of review. We affirm.


          [¶2] RCS hired BHE as a subcontractor for three projects: University Center (University Project), LaCrosse Street Apartments (LaCrosse Project), and Toyota of the Black Hills (Toyota Project). BHE and RCS executed virtually identical subcontract agreements for the projects. All three subcontracts were the subject of this lawsuit, but only issues relating to the LaCrosse and Toyota Projects are being appealed. All of the projects involved excavation work and installation of utilities. BHE was terminated from the projects and commenced this action, alleging that RCS breached the contracts by wrongfully terminating BHE. RCS counterclaimed, alleging that BHE breached its agreements by failing to hold the necessary license to perform parts of the work, failing to maintain a schedule, and failing to adequately staff the job. It also filed a third-party complaint against Morris, the president and sole shareholder of BHE. It alleged that he was personally liable for BHE's actions because he purported to act on behalf of BHE despite knowing that the corporation had been administratively dissolved. We address each of the projects in turn.

         LaCrosse Project

          [¶3] RCS and BHE entered into a subcontract for the LaCrosse Project on April 9, 2010. The work BHE was to perform included site grading, storm sewer, sewer and water, and final grading of the base course. By June, BHE was behind the construction schedule. On June 30, 2010, RCS sent its first notice letter to BHE to " serve as [its] warning notice and request to cure breaches for . . . failure to maintain performance schedule[.]" The letter gave BHE until July 5, 2010, to correct deficiencies before RCS proceeded with its remedies. On July 22, 2010, RCS issued a termination letter to BHE. However, instead of terminating BHE, RCS created a remedial schedule and attempted to solve the problems with BHE. When attempts to meet the remedial schedule failed, RCS issued another termination letter to BHE on August 20, 2010. The letter stated that RCS was invoking sections 16 and 17 of the subcontract agreement and that RCS would be replacing BHE. BHE was finally ejected from the project on or about August 23, 2010.

          [¶4] Ultimately, the circuit court found that BHE breached the LaCrosse Project subcontract by failing to maintain a schedule consistent with project requirements and failing to adequately staff the job. It also found that BHE failed to submit certified payrolls as required and it was not licensed, as required, to perform the water and sewer part of the work. As a result, the court found that BHE was properly terminated under section 16 of the contract, which provides in full:

That in case the Subcontractor shall fail to correct, replace and/or re-execute faulty or defective work done and/or materials furnished under this Subcontract, when and if required by the Contractor, or shall fail to complete or diligently proceed with this Subcontract within the time herein provided for, the Contractor upon twenty-four (24) hours notice in writing, via facsimile, or otherwise written means to the Subcontractor shall, have the right to correct, replace and/or re-execute such faulty or defective work, or to take over this Subcontract and

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complete same either through its own employees or through a contractor or subcontractor of its choice, and to charge the cost thereof to the Subcontractor, together with any liquidated damages caused by a delay in the performance of the Subcontract. Subcontractor shall be responsible for all costs or expenses incurred by Contractor as a result of Subcontractor's failure to perform satisfactorily. In addition, as/if Subcontractor creates delays, the Subcontractor shall be responsible for any/all additional costs attributable to such schedule delays as it impacts other trades; all additional costs for overtime/second or split shift, will be borne by this Subcontractor to get the project back on schedule.

         Due to the termination under section 16 and the expenses incurred by RCS to finish the project, the court awarded back charges in the amount of $387.32 to RCS.

         Toyota Project

          [¶5] BHE and RCS entered into the Toyota Project contract on June 4, 2010.[1] Under the subcontract, BHE was to perform excavation and utility work similar to the LaCrosse Project. Again, BHE fell behind on the project. RCS issued written notice of defective work to BHE on October 15, 2010. The letter informed BHE that it was failing to maintain a schedule in accordance with the subcontract. It gave BHE until October 18 to remedy the problems. RCS issued another written notice of breach to BHE on November 20, 2010. Again, the notice indicated that BHE would have time to cure the breaches enumerated in the letter. It gave BHE until November 22 to cure the breach, after which time RCS would " proceed with remedies as stipulated in the subcontract agreement section 16 for breach[.]" [2] RCS finally terminated the subcontract in January 2011. The circuit court found that this was a proper termination under section 16 of the subcontract. The court awarded RCS $191,208.11 in damages.

          [¶6] BHE's appeal raises the ...

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