Just Because You Allege There Was an Oral Contract Doesn’t Mean You’re Off the Hook for Attorneys’ Fees if you Lose
There’s certain things in life you shouldn’t mix. Like drinking and driving. Bleach and ammonia. Triple dog dares and frozen poles. And angry lawyers and litigation.
In Spahn v. Richards, Case No. A159495 (November 30, 2021), angry lawyer Jeffrey Spahn sued general contractor Dan Richards claiming that Richards orally agreed to build Spahn’s million dollar plus house for $515,000. Not only did Spahn not recover anything from Richards, he ended up owing Richards $239,171 in attorney’s fees and costs, after he denied a request for admission asking that he admit that there was no oral contract.
The Spahn Case
In 2017, Spahn filed suit against Richards for breach of oral contract, breach of implied covenant of good faith and fair dealing, and promissory estoppel. According to Spahn, he met Richards in June 2015 and the two reached an agreement whereby Richards agreed to demolish Spahn’s house for $12,500 and build a new one for $515,000. Further according to Spahn, Richards agreed to this “fixed price” “oral contract” in June 2015, and then, on July 1, 2015, Richards “confirmed and agreed that he would perform the construction project” for $515,000 and would complete construction by May 2016.
In the course of the case, Richards served a request for admissions to Spahn asking that he admit that the parties never entered into an alleged oral contract and that there was no meeting of the minds to form any alleged contract. Richard also asked Spahn to admit that the alleged oral contract was not binding or enforceable. Spahn denied the request for admissions.
At trial, the evidence shoed that Spahn purchased the property in 2014 and intended to demolish the existing house and build a new house to “showcase his art collection.” Note, that it is never good precursor in a case involving an attorney when an appellate court highlights an attorney’s “art collection.”
Spahn hired Ajay Manthripragada, a Princeton-U.C. Berkeley trained architect, whose focus is on the operativity of geometry, history and context in the construction of buildings. Yes, “operativity.” I had to look that up. From the adjective “operative,” meaning “being in effect; having force; operating,” as in “the operativity of my moody teenage daughter on our household, which merely lives in our house and has no art worth showcasing, is enough to make you want to live in a different house altogether.
In May 2015, Spahn and Manthripragada interviewed Richards and discussed Spahn’s budget for demolition and construction. Following the meeting, Spahn gave Richards a set of preliminary drawings, all of which were marked “NOT FOR CONSTRUCTION” and had a blank schedule and no material specifications. Richards requested “contractor” plans but none was provided. Richard’s custom and practice was to submit a project estimate in writing to use a written construction contract, but without those plans, Richards could not prepare a bid for the construction project.
On June 30, 2015, Richards signed a written contract for the demolition work and completed the demolition that same day. That evening, Spahn emailed Manthripragada and Richards stating, “assuming we get [Richards] approved, and we select [him] to do the job, fingers crossed” “the bank will take 45 days to vest the loan and begin.” On July 4, 2015, Manthripragada reminded Richards that that he and Spahn were “waiting” for Richards bid. On that same day, Spahn told Manthripragada that he was “looking into other options to hire contractors we like . . . budget on this now should be well under $500k.”
During this time, Spahn solicited bids from other contractors and received bids ranging from $600,000 to $800,000. One contractor told Spahn the home could not be built for $300 per square foot and called Spahn’s estimated $500,000 budget “ridiculous.”
On July 21, 2015, after Richards had completed the necessary paperwork to obtain approval from Spahn’s lender, Spahn told Manthripragada: “I think we have a committed contractor we just need to tread lightly until we have a contract signed.” About a week later, Spahn and Manthripragada prepared, and later revised, a draft construction contract. The contract attached an “itemized budget” with a total cost of $515,000. Because Richards had not provided a bid or an itemized cost breakdown, Spahn and Manthripragada “made up” certain costs and used cost estimates from other contractors’ bids.
In early August 2015, Spahn asked Richards to come to his office. When Richards arrived, Spahn presented Richards with the written contract. It was signed by Spahn. According to Richards, he was “flabbergasted” over the fake budget and did not sign the contract. Several weeks later, Richards told Spahn that he was not going to pursue the construction project. Spahn later hired another contractor to build the house at a cost exceeding $1 million.
According to Spahn, he and Richards entered into an oral agreement in June 2015 when Richards agreed in a telephone call lasting a “couple of minutes” to build Spahn’s home for the fixed price of $515,000. Richards and Spahn did not discuss specific costs or a payment schedule during that call.
Following the close of evidence, the jury returned with a verdict in favor of Richards concluding that there was no contract and that Richards did not make a promise with clear and unambiguous terms. Richards later filed a motion for attorney’s fees and costs under Code of Civil Procedure section 2033.420 – which provides that if a party serving a request for admissions thereafter proves the genuineness of the truth sought to be admitted, the party serving the request may request an order from the court for the reasonable costs and attorneys’ fees incurred in making that proof – which was granted by the court in the amount of $239,170.86.
On appeal, the First District Court of Appeal explained that under Code of Civil Procedure section 2033.420, a party serving a request for admissions is entitled to recover its reasonable costs and attorney’s fees in proving the truth of a request for admission denied by another party, unless it finds one of the following:
- An objection to the request was sustained or a response to it was waived;
- the admission sought was of no substantial importance;
- There was reasonable ground to believe the party refusing to admit the matter would prevail on the matter; or
- there was other good reason for the failure to admit.
“In evaluating whether a ‘good reason’ exists for denying a request to admit,” explained the Court of Appeal, “a court may properly consider whether at the time the denial was made the party making the denial held a reasonably entertained good faith belief that the party would prevail on the issue at trial.” Further, explained the Court, “[a] party’s reasonable belief must be grounded in the evidence; it cannot be based merely on ‘hope or a roll of the dice.’ It is also not enough for a party making the denial to ‘hotly contest’ the issue; instead, ‘there cyst be some reasonable basis for contesting the issue in question before sanctions can be avoided.'”
The Court of Appeal, reviewing the trial court’s order awarding costs of proof under Code of Civil Procedure section 2033.420 for abuse of discretion, explained that it would not disturb the trial court’s order unless “it is shown that the trial court exceeded the bounds of reason” and that review based on abuse of discretion “is a deferential standard of review that requires us to uphold the trial court’s determination, even if we disagree with it, so long as it is reasonable.”
According to the Court of Appeal, while Spahn alleged that he and Richards had entered into an oral agreement in which Richards agreed to build the home for $515,000 in June 2015, the evidence introduced at trial “belied that contention,” since Spahn was aware that Richards had not submitted a written bid before or after formation of the alleged oral contract, nor could he, since he architectural renderings were incomplete and not suitable for construction. Further explained the Court, during the short telephone call between Spahn and Richards, there was no discussion of specific costs or a payment schedule, and Spahn knew that he and Manthripragada “made up” information about the construction costs in the written contract Spahn presented to Richards and which Richards refused to sign.
These facts, stated the Court of Appeal, were known to Spahn when he denied Richards’ request for admissions, and as such the trial court could “reasonably conclude the claimed oral contract lacked essential and sufficiently definite terms that would establish the existence of a meeting of the minds.” Further, explained the Court of Appeal:
Plaintiffs’ arguments to the contrary are unavailing. According to plaintiffs, the court failed to consider evidence supporting their “belief that an oral contract had been formed.” Not so. The court considered the evidence upon which plaintiffs relied, including testimony that Richards commenced the demolition before the parties signed the demolition contract, and evidence that Spahn e-mailed Richards in mid-July stating Richards’s “bid” was the equivalent of a “fixed price contract at 515K.” Also before the court was evidence that in July 2015—after the date of the alleged oral contract— plaintiffs had not yet selected Richards to perform the construction and were instead actively soliciting bids from other contractors, and evidence that Spahn acknowledged in late July that he was not certain whether Richards was a “committed contractor.” This conduct, coupled with Spahn’s effort to obtain Richards’s signature on the written contract, was inconsistent with plaintiffs’ contention that an oral contract already existed.
The Court of Appeal also found that an earlier filed motion for summary judgment by Richards that was denied by the trial court did not establish that Spahn had a good faith belief that would prevail at trial. A motion for summary judgment is only appropriate “‘where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law,'” explained the Court, and a “trial must liberally construe the evidence presented in opposition to the motion and resolve any doubts about the evidence in favor of the party opposing the motion.” “At trial, the trier of fact has no such obligation.”
Finally, the Court of Appeal found that the trial court’s denial of Richards’ motion for directed verdict at the conclusion of evidence did not establish that Spahn had presented “credible evidence that [he] entered into an enforceable contract with Richards.”
So there you have it. Don’t let anger get to your head. And if you’re an attorney, while you may know the ins and outs of litigation, don’t let that get to your head either. And, finally, never, ever fall for the triple dog dare.
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