Oregon Ruling Calls Into Question Quantum Meruit Claims in Construction Cases
On February 15, 2023, the Oregon Court of Appeals ruled that an excavation subcontractor, plaintiff Kizer Excavating Co., ("Kizer") could not maintain a quantum meruit claim against a general contractor, defendant Stout Building Contractors, LLC, ("Stout") for work performed by Kizer beyond that contemplated in Kizer's proposal, which was incorporated into the subcontract.[1]
Kizer brought claims against Stout for breach of contract and quantum meruit. Kizer estimated that it would excavate 500 cubic yards of fill (although the parties agreed that was a clerical error and should have been 1,500 cubic yards). In the end, Kizer excavated 3,290 cubic yards. The trial court found that the disparity was due to an erroneous survey and unanticipated water.[2]
Kizer sought to be compensated for the additional work through a change order but did not timely submit that change order, and Stout rejected it. Kizer then initiated litigation.[3]
The trial court determined that both parties had fulfilled their obligations under the subcontract and, therefore, rejected Kizer's claim that Stout had breached the subcontract. As for the quantum meruit claim, the trial court concluded that, when Stout rejected the change order relating to the additional excavation, that work became "extracontractual," outside the consensual agreement of the parties, but that Kizer had a reasonable expectation that Stout would pay for the work. The court concluded that Kizer was entitled to be compensated for that work, under an "implied in fact" contract, and awarded Kizer damages.[4]
The Court of Appeals disagreed. It first distinguished between the "two distinct theories" of quantum meruit claims: (1) a theory based on a promise to pay for services "implied in fact," which retains a contractual character, or (2) a theory based on an obligation "implied in law," as necessary to avoid unjust enrichment.[5]
The Court of Appeals then reasoned that "[i]f a dispute is governed by an express contract, no contract will be implied either in fact or in law, and the terms of the express contract control." It then turned to the positions and admissions of the parties that "despite the trial court's characterization of [Kizer's] claim as one for a contract implied-in-fact, [Kizer's] quantum meruit claim is properly characterized as one of quasi-contract implied in law" and that "the parties agreed at trial that [Kizer's] quantum meruit claim arose only if there was no valid contract."[6]
Since the parties agreed that the excavation work for which Kizer sought compensation in its quantum meruit claim was with the scope of the parties' subcontract, the Court of Appeals found that the excavation work was subject to the terms of the subcontract, including its provisions relating to change orders. It then held that it does "not perceive, nor had [Kizer] identified, any factual or legal ground on which to conclude that the fact that [Stout] rejected the change order relating to additional excavation brought the work itself outside the scope of the subcontract."[7]
As a result, it found that the additional excavation work "could not provide a basis for relief in quantum meruit under an implied-in-law quasi-contractual theory" and that the trial court erred in determining that Stout's rejection of the change order made the additional work "extracontractual."[8]
Certainly, this decision raises questions about why Kizer's subcontract claim was denied and whether it was denied because Kizer's submission of it was "untimely" or whether there was a different and more substantive reason for the denial of that claim. It also raises questions about whether a contractor or subcontractor could ever maintain a claim for quantum meruit for additional work that is, arguably, within the same scope of work as set forth in the contract or subcontract, regardless of how much additional work was required. We will see if Kizer seeks a petition for review of this decision by the Oregon Supreme Court.
Please reach out to our Government Contracts & Construction group for any questions you may have relating to additional work or differing site conditions on construction projects.
[1] Kizer Excavating Co. v. Stout Builder Contractors, LLC, 324 Or App 211, 219-20, 2023 WL 2004519 (2023).
[2] Id. at 213-14.
[3] Id. at 214.
[4] Id. at 215.
[5] Id. at 217.
[6] Id. at 218-19.
[7] The Court of Appeals also held that an agreement entered between the parties after the litigation was commenced to allow the prevailing party to recover attorney fees was valid. Id. at 220.
[8] Id. at 219-20.