Construction companies acted in good faith when advocating a business partner’s cost-saving proposal
The fact that a construction contract specifically required two members of a joint venture to “advocate” for a business partner’s cost-savings proposal did not preclude a claim that the companies violated their duty of good faith and fair dealing by failing to bring that proposal all the way to the top state engineer, Division Two of the Court of Appeals has held. But the Court, in finding that the existence of an express contractual term on the subject did not preclude the claim as a matter of law, nonetheless concluded that the companies advocated in good faith and that any further efforts would have been “futile.”
The background for the litigation is a construction project to improve the traffic exchange between I-10 and Ina Road, a major thoroughfare in North Tucson. Two construction companies, Sundt and Kiewitt, created a joint venture to handle the construction. The joint venture entered into an agreement with an engineering company, Crown Engineering, under which Crown would from time to time propose ways to save costs on the construction—cost savings that, if approved by the Arizona Department of Transportation, would be passed on to the three companies.
The dispute arose when Crown suggested altering the original proposal in a way that would have saved roughly $500,000. (The details of the alteration are not important, but Crown’s proposal essentially would have eliminated plans to add additional concrete to a certain part of the pre-existing structure.) Sundt and Kiewitt, the joint ventures, proposed the alteration to ADOT, but ADOT rejected it. To the disappointment of Crown, however, the joint venturers did not escalate the dispute to the state engineer, who could have overruled ADOT and signed off on the cost-saving proposal.
Crown sued Sundt and Kiewitt, alleging that by not escalating the cost-saving proposal to the state engineer, the joint venturers violated their duty of good faith and fair dealing to Crown. The trial court agreed with Crown that it had shown enough evidence to avoid summary judgment on the duty of good faith and fair dealing claim, but it nonetheless granted summary judgment to the joint venturers because Crown had not shown any damages.
Both parties appealed, leading to this decision.
Duty of good faith and fair dealing
The court of appeals reversed the trial court’s decision on the duty of good faith and fair dealing, finding that the trial court should have granted summary judgment to the joint venturers on that issue. The alled violation of good faith largely pivoted around the contract’s requirement that the joint venturers “advocate” for any cost-savings proposal. The ambiguous term “advocate” did not necessarily mean that the joint venturers were required to bring the dispute all the way to the state engineer—hence no violation of any express terms of the contract. But the joint venturer held off on doing so, Crown argued, because it wanted to preserve its good relationship with the engineer for future projects. Was there enough to get beyond summary judgment on this theory? The joint venturers argued that there was not, and the court of appeals agreed.
Crown’s argument was grounded in a valid legal theory, the court held—but it fell short on facts. To be sure, the court noted, the mere fact that the term “advocate” was used in the contract did not preclude a claim that Crown breached its duty of good faith and fair dealing by failing to advocate sufficiently. To the contrary: as long as the alleged duty of good faith and fair dealing did not contradict with the term of the contract—and here it did not, because the term “advocate” was ambiguous—Crown’s argument was on firm legal ground. But the claim failed anyway. The joint venture did advocate the cost savings plan—not only to ADOT itself, but also to two higher-ranking engineers within the state. All the joint venture failed to do was to bring the dispute to the state’s top engineer. Moreover, the evidence showed, any further advocacy would have been futile. Thus, there was no breach of the duty of good faith and fair dealing here.
To add insult to injury, the court of appeals found that even if Crown could have gotten past summary judgment on the good faith and fair dealing argument, it still could not show damages—for the simple reason that even if the joint venture had elevated the proposal the state engineer, that would have been futile. Thus, summary judgment in the joint venture’s favor was affirmed on that basis as well.
The case is Crown Engineering Services, LLC v. Sundt Construction, Inc. and Kiewitt Corp. No. 2 CA-CV 2022-0071 (filed April 7, 2023)