Tanaguchi-Ruth + Associates v MDI Guam Corporation (Leo Palace Resort) [2005] GUSC 7; 2005 Guam 07 (1 April 2005)

IN THE SUPREME COURT OF GUAM

TANAGUCHI-RUTH + ASSOCIATES
dba TANAGUCHI-RUTH ARCHITECTS,
Plaintiff-Appellee,

v.

MDI GUAM CORPORATION dba LEO PALACE RESORT,
Defendant-Appellant.

OPINION

Filed: April 1, 2005

Cite as: 2005 Guam 7

Supreme Court Case No.: CVA03-021
Superior Court Case No.: CV0671-02

Appeal from the Superior Court of Guam
Argued and submitted on October 15, 2004
Hagåtña, Guam

Appearing for Plaintiff-Appellee: Duncan G. McCully, Esq. McCully & Beggs, P.C. Ste. 200, 139 Murray Blvd. Hagåtña, GU 96910

Appearing for Defendant-Appellant: Thomas L. Roberts, Esq. Dooley, Roberts & Fowler LLP Ste. 201 Orlean Pac. Plaza. 865 S. Marine Dr. Tamuning, Guam 96911

BEFORE: F. PHILIP CARBULLIDO, Chief Justice; FRANCES M. TYDINGCO-GATEWOOD, Associate Justice; ROBERT J. TORRES, JR., Associate Justice.

TORRES, J.:

[1] The Defendant-Appellant, MDI Corporation dba Leo Palace Resort (ALeo Palace"), appeals a judgment awarding quantum meruit recovery to the Plaintiff-Appellee, Tanaguchi-Ruth + Associates dba Tanaguchi-Ruth Architects (ATRA"), for architectural work performed by TRA on behalf of Leo Palace. Leo Palace's primary contention on appeal is that the trial court erred in allowing recovery because Leo Palace did not receive or use TRA's work, and, therefore, Leo Palace did not receive a benefit from TRA as required for recovery under a quantum meruit theory. Leo Palace also challenges the trial court's finding that TRA satisfied its duty to mitigate damages, and finally, challenges the trial court's award of prejudgment interest. We hold that the trial court correctly allowed for quantum meruit recovery, but erred in awarding recovery for work performed after TRA became reasonably aware that it could not perform the work within Leo Palace's design budget. We further determine that Leo Palace waived its objection to the trial court's award of prejudgment interest. We affirm the lower court's judgment in part and reverse in part.

I.

[2] The construction project for the Leo Palace Resort Complex in the Manenggon Hills area of Yona commenced in the 1980's. In the late 1980's, TRA was hired by and performed architectural services for Leo Palace for portions of the project. After construction commenced on the project, in the early 1990's, Leo Palace decided to indefinitely postpone the interior finishing of the hotel building (now the Hotel Belvedere) on the Complex. The hotel sat as a shell until November of 2000, at which time Leo Palace decided to complete the interior work.

[3] In late 2000, Sumitomo Construction Company contacted and informed TRA that Sumitomo was chosen as the contractor for the construction of the hotel. TRA understood that its role was to take design concepts from other architects hired by Leo Palace and to prepare the construction drawings and specifications to obtain the necessary Guam building permits. TRA began initial preparations, deciding to complete their work in three staggered packages, which would enable the permits to be acquired in stages. Package 1 entailed converting TRA's early drawings into Computer Assisted Drafting format, and designing the guest rooms. Package 2 covered the common areas and lobbies, while Package 3 encompassed the hotel's restaurants.

[4] As originally planned, TRA's fee was to be submitted to Sumitomo, included as part of Sumitomo's total construction costs and be paid for by Sumitomo. TRA submitted to Sumitomo an initial fee proposal for all three packages for $1,285,900.00. Sumitomo found this amount problematic for unstated reasons, and informed TRA that Sumitomo would negotiate a new amount and thereafter submit what they considered an acceptable fee proposal to Leo Palace. TRA and Sumitomo never decided on any set amount for the work for the three packages.

[5] TRA eventually came to an agreement with Sumitomo that Sumitomo would guarantee to pay TRA's fees for the Package 1 work. TRA then started work on the Package 1 documents. At some point after TRA started work on Package 1, Leo Palace arranged to pay TRA directly for that portion of the work. During this time, TRA's fee for the Package 1 work was still not made definite.

[6] On July 7, 2001, two representatives of Leo Palace, Mr. Ishii and Mr. Hyodo, met with TRA's representative, Mr. Ruth, to negotiate the fee for the Package 1 work, which at that point was approximately 60% completed. The parties reached an agreement on the fee and Leo Palace instructed TRA to complete the Package 1 work, which was due on July 31, 2001.[1] At the July 7, 2001 meeting, Mr. Ishii also requested that TRA submit a quote for the Package 2 work. Up until this point, TRA had been working and corresponding with two architectural firms hired by Leo Palace regarding the scope and ideas for the Package 2 work. These firms were Archiprime (AAP") and Riccardo Tossani Architecture Co. (ARTA").

[7] On July 24, 2001, Leo Palace sent TRA a letter, addressed to Mr. Ruth, informing TRA that Sumitomo was to arrange for RTA and TRA Ato continue with the application of a building permit for the (phase one) guestrooms." Appellant's Excerpts of Record (AER"), p. 72 (Letter from Abe to TRA of 7/24/01). The letter further stated:

However, development of the project has increased at such a rapid rate, therefore it is getting steadily harder (for the above RTA and AP companies) to carry on working together on and after phase two. Kanko Kikaku Sekkeisha Co. (KKS) . . . has been chosen to continue and complete the project. The operating arrangement has been concluded and is now contracted to KKS.

KKS would like to continue the project with the guidance of TRA as a local partner, Leopalace . . . has approved of this move without any obligations, and we would appreciate your continuing support of the project. The construction period has a prearranged time limit, therefore, we are theorizing as to apply the original drawings and specifications (of the almost completed phase one) in order to prevent further delays. Please note that KKS will be making use of your preliminary drawings.

We would be grateful if the estimate and invoice could be submitted to the office of Leopalace . . ., situated at MDI GUAM CORPORATION, however this must be sent through the services of KKS.

We would highly appreciate your cooperation in the development of Manenggon Hills and the collaborating local Guam companies.

/s/ Satoshi Abe
Director

Appellant's ER, p. 72 (Letter from Abe to TRA of 7/24/01).

[8] Upon receipt of the July 24, 2001 letter, TRA thereafter commenced work on Packages 2 and 3, apparently under the direction of KKS. Specifically, KKS submitted its conceptual drawings to TRA on September 20, 2001, and requested that TRA complete various items of work utilizing these drawings. At this point the deadline for the completion of the Package 2 and 3 work was October 31, 2001. This deadline reflected the November 1, 2001 deadline for applying for the building permits. Considering these deadlines, upon receipt of KKS's drawings on September 20, 2001, TRA enlisted the help of engineering consultants to work on Packages 2 and 3 while it simultaneously prepared its fee proposal for these packages. The consultants included GK2 Inc., EMC2 Mechanical, Inc., and EMCE, Consulting Engineers. On September 28, 2001, TRA sent Leo Palace its fee proposal for Packages 2 and 3. The proposed fee was $827,000.00. At this point, TRA had incurred $26,050.00 in fees for work already performed on Packages 2 and 3, which included work done by both TRA and its engineering consultants.

[9] On October 10, 2001, a representative of KKS left a message with TRA recommending that Mr. Ruth meet with Mr. Ishii on the following Saturday regarding Leo Palace's concerns with TRA's fee proposal. The KKS representative also recommended that TRA call Mr. Ishii prior to Mr. Ishii's arrival on Guam. TRA did not call Mr. Ishii. Notwithstanding this communication by KKS to TRA regarding the concerns over TRA's fee proposal, KKS, on October 11, 2001, sent an email to TRA indicating that Leo Palace had Aaccept[ed] to proceed design work based on the original design in order to preserve the permit schedule." Appellee's Supp. Excerpts of Record (ASER"), p. 44 (E-mail from Yukiharu, Architect, KKS to H. Mark Ruth, FAIA and Melet Santos, TRA (Oct. 26, 2001, 9:00 pm)). KKS further instructed TRA to proceed with the layout revisions to the car parking.

[10] Mr. Ruth, Mr. Ishii and Mr. Hyodo met on October 15, 2001. At the meeting, Mr. Ishii informed TRA that Leo Palace's budget for the Package 2 and 3 work was between $300,000.00 and $400,000.00. Mr. Ruth knew at this meeting that TRA could not possibly do the work required for $300,000.00 to $400,000.00, but did not disclose this information to Mr. Ishii or Mr. Hyodo.

[11] On October 18, 2001, TRA faxed Leo Palace a proposed new fee of $659,000.00. Mr. Ruth, Ishii, and Hyodo met later that day, and Mr. Ishii again informed Mr. Ruth that Leo Palace could not pay more than between $300,000.00 and $400,000.00.

[12] Mr. Ruth sent a letter to Leo Palace on October 22, 2001, revising and reducing TRA's fee to $592,000.00. Mr. Ruth also informed Leo Palace that the work for Package 2 was 70% complete for the architectural and structural portions, and 50% complete for the mechanical and electrical portions. Mr. Ruth also stated that they did not want to be responsible for any schedule delays, and that A[a]s required by the schedule, these documents will be complete November 1st. Please advise us in writing if this is not what you wish." Appellant's ER, p. 88 (Letter from TRA to Ishii of 10/22/01).

[13] On October 23, 2001, Mr. Ishii faxed a letter to Mr. Ruth, stating that they received the revised estimated design fee for Packages 2 and 3. The letter continued: AHowever, we regret to say that we are not able to accept your proposal because the Amount is still too high than our budget. Therefore, we herewith inform you not to order the job to your firm this time." Appellant's ER, p. 126 (Letter from Ishii to TRA of 10/23/01).

[14] Leo Palace eventually hired another local architecture firm Martin, Cristobal & Laguana (AMCL") to do the Package 2 and 3 work for a negotiated fee of between $320,000.00 and $330,000.00.

[15]