Southern Building Services, Inc. v. City of Fort Smith

Cite as 2014 Ark. App. 437

ARKANSAS COURT OF APPEALS
DIVISION III
No. CV-13-1132

SOUTHERN BUILDING SERVICES, Opinion Delivered September 3, 2014
INC.
APPELLANT APPEAL FROM THE SEBASTIAN
COUNTY CIRCUIT COURT,
V. FORT SMITH DISTRICT
[NO. CV-2010-478]

CITY OF FORT SMITH, ARKANSAS HONORABLE J. MICHAEL
APPELLEE FITZHUGH, JUDGE

REVERSED AND REMANDED

BILL H. WALMSLEY, Judge

This dispute between appellant Southern Building Services, Inc., and the City of Fort

Smith (the “City”) returns to our court. See S. Bldg. Servs., Inc. v. City of Fort Smith, 2013

Ark. App. 306, 427 S.W.3d 763 (Southern I). The issues in this appeal are (1) determining the

“prevailing party” for purposes of an award of attorney’s fees and (2) entitlement to

prejudgment interest. Southern argues that the circuit court erred in finding that the City was

the prevailing party and awarding attorney’s fees to the City. Southern also asserts that it is

entitled to prejudgment interest on the funds owed to it by the City. We agree that Southern

is the prevailing party and that it is entitled to prejudgment interest. Accordingly, we reverse

and remand for further proceedings consistent with this opinion.

The facts of this case are set out in detail in Southern I. Briefly, this case involves a

dispute between Southern and the City over Southern’s failure to complete a construction
Cite as 2014 Ark. App. 437

project for the City. After the City terminated the contract for not timely completing the

work, Southern filed suit for the remaining $183,701.22 that it claimed it was owed under the

contract and for its attorney’s fees. The City counterclaimed for liquidated damages and

prejudgment interest it claimed under the contract.

After a bench trial, the circuit court awarded the City $134,250 in liquidated damages

for Southern’s failure to timely achieve substantial completion of the contract and 6%

prejudgment interest. It also awarded the City $30,999, representing the City’s costs to

complete the project, and $51,262 in attorney’s fees. The court denied the City’s claim for

liquidated damages based on Southern’s failure to achieve final completion of the contract.

There was no mention of Southern’s claim for the $183,701. Southern appealed, and the City

cross-appealed.

We affirmed the liquidated-damages award to the City because Southern did not

achieve substantial completion; however, we found that the circuit court erred in awarding

prejudgment interest from June 18, 2008. Southern I, at 8, 427 S.W.3d at 767–68. We also

remanded to the circuit court to apply a set-off of $183,701, representing the sum due

Southern against the $134,250 awarded to the City because the City admitted that it had

possession of the funds that were due Southern since 2008. Id. We affirmed the cost-of-

completion-damages award to the City. Southern I, at 9, 427 S.W.3d at 768. However, we

vacated the award of attorney’s fees, stating that the circuit court could redetermine who the

prevailing party was on remand. Southern I, at 10, 427 S.W.3d at 768. On the City’s

cross-appeal, we held that the circuit court did not err in denying the City’s claim for

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liquidated damages for Southern’s failure to achieve final completion of the contract work

because the City failed to mitigate its damages. Southern I, at 10–11, 427 S.W.3d at 769. The

City filed a petition for review in the supreme court, which was denied on September 12,

2013.

On remand, Southern filed a motion seeking attorney’s fees and prejudgment interest.

In its supporting brief, Southern asserted that it was the prevailing party on the basis that, after

applying the set-off, it was still owed money. Southern cited Marcum v. Wengert, 344 Ark. 153,

40 S.W.3d 230 (2001), as its primary authority. Southern also sought prejudgment interest

accrued on the $183,701.22 since 2008.

The City renewed its motion for attorney’s fees and responded to Southern’s motion

for fees and prejudgment interest. In its motion and supporting brief, the City acknowledged

that, after applying the set-off, Southern was entitled to $18,451.26. The City also sought its

original attorney’s fees of $51,262. The City argued that it had successfully reduced Southern’s

claim by 90%, from $183,701.22 to $18,451.26. Ultimately, the City claimed that it was the

prevailing party and sought a judgment in the amount of $32,810.74, representing the City’s

recovery of liquidated damages, completion damages, and attorney’s fees less Southern’s set-

off. The City’s primary authority for its position was CJ Building Corp. v. TRAC–10, 368 Ark.

654, 249 S.W.3d 793 (2007).

The circuit court found that, after applying the set-off, Southern was due $18,451.26.

The court then turned to the issue of identifying the prevailing party. The court found CJ

Building directly on point and that, because the City had successfully reduced Southern’s claim

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by 90%, it was the prevailing party. The City was awarded $51,262 in attorney’s fees. This

appeal followed.

On appeal, Southern argues two points: (1) the circuit court erred in finding that the

City was the prevailing party and in awarding it attorney’s fees; and (2) the court erred in

failing to award prejudgment interest on the amounts owed by the City to Southern under

the contract.

Arkansas Code Annotated section 16-22-308 (Repl. 1999),which allows a prevailing

party to recover reasonable attorney’s fees in a breach-of-contract action, provides in pertinent

part as follows:

In any civil action to recover [for] . . . breach of contract, unless otherwise
provided by law or the contract which is the subject matter of the action, the
prevailing party may be allowed a reasonable attorney’s fee to be assessed by the court
and collected as costs.

Our supreme court has said that a circuit court is not required to award attorney’s fees and,

because of the judge’s intimate acquaintance with the trial proceedings and the quality of the

service rendered by the prevailing party’s counsel, the circuit judge has a superior perspective

to determine whether to award fees. Harrill & Sutter, P.L.L.C. v. Kosin, 2012 Ark. 385, 424

S.W.3d 272. The decision to award attorney’s fees and the amount to award is discretionary

and will be reversed only if the appellant can demonstrate that the circuit court abused its

considerable discretion. Id.

The first issue for us to determine is whether the circuit court abused its discretion in

awarding attorney’s fees to the City. As part of this determination, we must consider whether

the circuit court erred in deciding that the City was the “prevailing party” in this lawsuit. In

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both CJ Building, supra, and Marcum, supra, the supreme court held that to be the prevailing

party under section 16-22-308, the litigant must be granted some relief on the merits of its

claim. In CJ Building, the general contractor successfully argued that it was contractually

entitled to deduct its expenses in completing the contract from the retainage, even though the

end result was that the subcontractor received a judgment for the difference. In Marcum, both

parties were somewhat successful because they each were awarded a money judgment on part

of their claims, albeit not the full amount sought. We recently held that a circuit court erred

in limiting its analysis to the outcome of the jury trial on damages instead of looking at the

case as a whole. Brackelsberg v. Heflin, 2011 Ark. App. 678, 386 S.W.3d 636.

In applying these precedents to the present case, the circuit court erred in its analysis

of determining the prevailing party. Contrary to the City’s argument, the requested attorney’s

fees are not added to the damages computations to determine the prevailing party. The court’s

order shows only that it analyzed the fact that the City reduced Southern’s claim by

approximately 90%; however, the court did not discuss the results that each party had

achieved. Unlike CJ Building, both parties in the present case sought money judgments against

the other. Southern was seeking approximately $183,000, which the City ultimately agreed

that it owed. The City, instead of merely defending against Southern’s claim, sought a money

judgment of its own against Southern for damages under the contract. In its amended

counterclaim, the City claimed total liquidated damages of approximately $290,000 and cost-

of-completion damages of $20,000, for a total of approximately $310,000. The City also

asserted that, after deduction of the amount owed to Southern, it was entitled to a judgment

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of approximately $127,000.1 The City was ultimately awarded approximately $165,000 before

Southern’s set-off. When considered as a whole, Southern is the prevailing party because it

was declared entitled to 100% of the amount it claimed in the litigation while the City was

awarded only 53% of the amount it sought. When the sums awarded to each party are netted

out, Southern is entitled to $18,451.26, and it is the prevailing party. See Carroll v. UV Props.,

LLC, 2009 Ark. App. 599. We reverse the attorney’s fee award to the City and remand to the

circuit court for it to exercise its discretion in reconsidering Southern’s motion for attorney’s

fees under Ark. Code Ann. § 16-22-308.

This brings us to Southern’s second point where it argues that the circuit court erred

in not awarding prejudgment interest on the $183,000 sought under the contract. Although

we did not specifically direct the circuit court to award prejudgment interest on Southern’s

$183,000, we did note that the City “has had the use and possession of $183,701.22 it admits

was due [Southern] since 2008.” Southern I, at 8, 427 S.W.3d at 767.

Prejudgment interest is compensation for recoverable damages wrongfully withheld
from the time of the loss until judgment. Prejudgment interest is allowable where the
amount of damages is definitely ascertainable by mathematical computation, or if the
evidence furnishes data that makes it possible to compute the amount without reliance
on opinion or discretion. This standard is met if a method exists for fixing the exact
value of a cause of action at the time of the occurrence of the event that gives rise to
the cause of action. Where prejudgment interest may be collected at all, the injured
party is always entitled to it as a matter of law.

Reynolds Health Care Servs., Inc. v. HMNH, Inc., 364 Ark. 168, 180–81, 217 S.W.3d 797, 807

(2005) (citations omitted). An award of prejudgment interest is a question of law, to be

1
The City also argued that it was entitled to retain the entire $183,000 as a retainage;
however, we rejected this argument on appeal. Southern I, at 8 n.4, 427 S.W.3d at 767 n.4.
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decided by the court. Aceva Techs., LLC v. Tyson Foods, Inc., 2013 Ark. App. 495, 429

S.W.3d 355. We give no deference to conclusions of law, which are reviewed de novo. Id.

We must first consider the City’s argument that the issue is not preserved for review

because we did not direct the circuit court to address the issue on remand and the lower court

did not do so in its judgment. Southern, in response, argues all that is required to preserve the

issue is the court’s failure to award prejudgment interest. Given the language in Reynolds

Health Care, supra; TB of Blytheville, Inc. v. Little Rock Sign & Emblem, Inc., 328 Ark. 688, 946

S.W.2d 930 (1997); and Toney v. Haskins, 7 Ark. App. 98, 644 S.W.2d 622 (1983), that

prejudgment interest is always awarded when the test is met, the issue is preserved for review.

Because the present case involves collection of the amount due Southern before

consideration of the July 2008 “Final Change” order, the determination of the amount of

prejudgment interest is possible without reliance on opinion or discretion. The City argues

that it did not agree to the sum in July 2008 and that it did not terminate the contract until

the City’s board of directors acted in March 2010. However, all that is required for an award

of prejudgment interest is that “a method exists for fixing the exact value of a cause of action

at the time of the occurrence of the event that gives rise to the cause of action.” Reynolds

Health Care, 364 Ark. at 180, 217 S.W.3d at 807. Moreover, there is no dispute that Southern

did not do further work after the June 18, 2008 date found by the circuit court at the

February 2012 trial. Therefore, the amount Southern was owed became fixed at that time

despite the fact that the City was still assessing charges for the amounts it was owed under the

contract. As noted above, when prejudgment interest may be collected at all, the injured party

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is always entitled to it as a matter of law. Reynolds Health Care, 364 Ark. at 181, 217 S.W.3d

at 808. Otherwise, the purpose of awarding interest would be frustrated if a party were not

compensated for the loss of use of all his money, both before and after judgment. TB of

Blytheville, supra. The award of interest is necessary to fully compensate an injured party. Id.

Thus, the circuit court erred in not awarding prejudgment interest to Southern.

There is one other point—the amount of prejudgment interest. Southern suggests that

such an award should be calculated to determine different amounts of prejudgment interest

on different sums that accrued between different dates as different amounts came due to the

City. Southern is actually calling for application of a form of the “interest-on-the-balance”

rule under which prejudgment interest would be awarded only on the net difference between

its claim and the City’s counterclaim. See Ralston Purina Co. v. Parsons Feed & Farm Supply,

Inc., 416 F.2d 207 (8th Cir. 1969).

Judge Harry Blackmun, writing for the Ralston Purina court, in a case arising in

Arkansas, discussed four different situations involving prejudgment interest in which a

liquidated claim was opposed by an unliquidated counterclaim:

The ‘interest on the balance’ rule allows prejudgment interest only on the difference
between the two claims from the date the unliquidated claim is due. The ‘conversion
of liquidated claim’ rule regards the difference as itself an unliquidated amount on
which prejudgment interest is not recoverable. The ‘interest on the entire claim’ rule
entitles the plaintiff to interest on the full amount of his claim when the counterclaim
does not directly concern the plaintiff’s claim, that is, when the unliquidated
counterclaim arises out of a collateral matter. This rule thus is an exception to the
‘interest on the balance’ rule. The fourth views the unliquidated ‘counterclaim as a
discount’ and entitles the plaintiff to interest on his full claim before judgment.

Ralston Purina, 416 F.2d at 211–12 (citation omitted). The Ralston Purina court affirmed the

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trial court’s decision to apply the interest-on-the-balance rule rather than the interest-on-the-

entire-claim rule as an equitable measure necessitated by the plaintiff’s bad faith in refusing to

recognize its obligations to the defendant. Id. at 213. In Bone v. Refco, Inc., 774 F.2d 235 (8th

Cir. 1985), the court noted that when, as in the present case, the liquidated-contract claim

and the counterclaim are related, the interest-on-the-balance rule generally applies.2 We

believe that the reasoning behind such an approach is appropriate to the facts of this case.

Because Southern’s complaint and the City’s counterclaim arise out of the same

contract, we remand to the circuit court to calculate the amount of prejudgment interest

owed to Southern by applying the interest-on-the-balance rule.

2
The prevailing law in other jurisdictions is that the off-set is applied prior to
calculating prejudgment interest—i.e., the interest is applied only to the balance of the
awards—when the parties’ claims are “related.” See Local Okla. Bank, N.A. v. United States,
59 Fed. Cl. 713, 722 (2004) (applying the interest-on-balance rule to “claims aris[ing] out of
related transactions”), aff’d, 452 F.3d 1371 (Fed. Cir. 2006); Fairway Builders, Inc. v. Malouf
Towers Rental Co., 603 P.2d 513, 537 (Ariz. App. 1979) (stating that the interest-on-balance
rule applies when “the unliquidated counterclaim offsets are attributable to the same contracts
which are the basis of the primary liquidated claims”); Hansen v. Covell, 24 P.2d 772, 776
(Cal. 1933) (applying the interest-on-balance rule where the counterclaim is “of a character
such as to constitute payment to the [plaintiff]”); York Plumbing & Heating Co. v. Groussman
Inv. Co., 443 P.2d 986, 988 (Colo. 1968) (stating that the interest-on-balance rule applies “in
situations in which the two claims arise out of the same general transaction”); Harmon Cable
Commc’ns of Neb. Ltd. P’ship v. Scope Cable Television, Inc., 468 N.W.2d 350, 371 (Neb. 1991)
(agreeing that the interest-on-balance rule should be applied where “the claims arose from
the same transaction”); Mall Tool Co. v. Far W. Equip. Co., 273 P.2d 652, 663 (Wash. 1954)
(stating that the interest-on-balance rule is applicable “when the amount to which a
defendant is entitled as a counterclaim or setoff is for defective workmanship or other
defective performance by the plaintiff, of the contract on which his liquidated or
determinable claim is based, of a character such that the award of damages as compensation
is regarded as constituting either a reduction of the amount due the plaintiff or a payment to
him”); Hollon v. McComb, 636 P.2d 513, 517 (Wyo. 1981) (stating that the interest-on-
balance rule should be applied “at least in those cases where the claims arise out of the same
general transaction”).
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Reversed and remanded for further proceedings consistent with this opinion.

GLOVER and VAUGHT, JJ., agree.

Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., by: Marshall S. Ney and Holly

M. Lar, for appellant.

Daily & Woods, PLLC, by: Jerry L. Canfield and Douglas M. Carson, for appellee.

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