E Solutions For Buildings, LLC v. Knestrick Contractor, Inc.

10/30/2019

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

August 13, 2019 Session

E SOLUTIONS FOR BUILDINGS, LLC v. KNESTRICK CONTRACTOR,

INC., ET AL.

Appeal from the Chancery Court for Davidson County

No. 15-62-IV Russell T. Perkins, Chancellor

___________________________________

No. M2018-02028-COA-R3-CV

___________________________________

This appeal involves payment disputes arising out of a public construction project.

Among other things, the case involves claims made by an equipment supplier against a

subcontractor, the project’s general contractor, and the general contractor’s bonding

company, and claims made by the same subcontractor against the general contractor.

Following a trial, the trial court granted the supplier a judgment against the subcontractor

and granted the subcontractor a judgment against the general contractor. The supplier’s

claim against the general contractor and its bonding company was denied. The propriety

of these rulings and numerous other issues are now before this Court. Having reviewed

the record transmitted to us on appeal, we affirm in part, affirm in part as modified,

reverse in part, and remand the case for such further proceedings as are necessary and

consistent with this Opinion.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

in Part; Modified in Part; Reversed in Part and Remanded

ARNOLD B. GOLDIN, J., delivered the opinion of the Court, in which J. STEVEN

STAFFORD, P.J., W.S., and CARMA DENNIS MCGEE, J., joined.

Paul T. Housch, Nashville, Tennessee, for the appellant, Air Comfort Heating and

Cooling, LLC.

Timothy H. Nichols, Nashville, Tennessee, for the appellee, E Solutions for Buildings,

LLC.

Adam G. LaFevor, Nashville, Tennessee, for the appellees, Knestrick Contractor, Inc.,

and Berkley Regional Insurance Company.

OPINION

BACKGROUND AND PROCEDURAL HISTORY

This case stems from the construction of the Centennial Sportsplex Indoor Fitness

Expansion Building by the Metropolitan Government of Nashville and Davidson County

(“Metro”). In April 2013, Metro entered into a contract with Knestrick Contractor Inc.

(“Knestrick”), pursuant to which Knestrick agreed to construct the Centennial Sportsplex

expansion. Under the contract, Knestrick was obligated to accomplish substantial

completion of the project by December 2, 2013,1 and if it failed to do so, Metro was

entitled to assess “the sum of $1,000.00 for each calendar day of delay until the Project is

Substantially Complete.” Knestrick, as principal, and Berkley Regional Insurance

Company (“Berkley”), as surety, provided a payment bond in connection with the

project.

Following its agreement to serve as a general contractor for the Centennial

Sportsplex expansion, Knestrick entered into a subcontract with Air Comfort Heating &

Cooling, LLC (“Air Comfort”) with respect to the HVAC work required for the project.

This subcontract, which was entered into in July 2013, specifically provided that the

work must be performed on or before November 27, 2013. Moreover, similar to the

prime contract between Metro and Knestrick, the subcontract involving Air Comfort

provided that $1,000.00 in liquidated damages could be assessed “for each day that the

work remains uncompleted beyond the specified date period.”

In furtherance of its required work under the subcontract, Air Comfort sought to

purchase certain HVAC equipment. To this end, Air Comfort engaged in negotiations

with E Solutions for Buildings, LLC (“E Solutions”). E Solutions sent Air Comfort a

proposal regarding the needed HVAC equipment on November 11, 2013, and on

November 13, 2013, Air Comfort submitted a purchase order for the equipment. The

purchase order recited December 13, 2013 as the delivery date, but in the terms and

conditions attached to the purchase order, the following was provided: “Shipment dates

are estimates only. No valid contract may be made to ship within or at a specified time

unless in writing, signed by an authorized signatory of Seller.” There was no liquidated

damages provision provided for in the contract between Air Comfort and E Solutions,

and the attached terms and conditions further stated that the seller, E Solutions, would

“IN NO EVENT . . . BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL, OR

PUNITIVE DAMAGES.” Moreover, the terms and conditions provided that E

Solutions’ duty to perform was subject to, among other things, the “inability to procure

1

Per an email sent in May 2013, a representative with Metro communicated that a revised construction

schedule, establishing a substantial completion date of December 6, 2013, was appropriate based on the

time it took Metro to process Knestrick’s final contract.

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materials from the usual sources of supply” and other causes beyond its “reasonable

control.”

When the original deadline for completion of the project proved untenable, Metro

and Knestrick entered into an amendment whereby the substantial completion date was

extended to January 26, 2014. Although no corresponding amendment was formally

made regarding the completion date of Air Comfort’s work under its subcontract with

Knestrick, a Knestrick officer testified that an extension was also passed on to

subcontractors. Nonetheless, the ultimate delay accompanying the project’s completion

has engendered substantial controversy among the parties concerning their respective

claims for payment. The project was eventually certified as substantially complete on

May 8, 2014.

Litigation subsequently ensued as a result of the construction project. The

initiating complaint in this matter, which was filed by E Solutions in the Davidson

County Chancery Court (“the trial court”) on January 15, 2015, alleged that E Solutions

had not been paid for the materials, equipment, and services it provided on the project. In

addition to asserting a bond claim against Knestrick and Berkley, E Solutions sued Air

Comfort for breach of contract. Further, E Solutions pled an unjust enrichment/quantum

meruit claim against Air Comfort and Knestrick.

On February 20, 2015, Air Comfort filed an answer to E Solutions’ complaint and

also asserted a counterclaim and cross-claim. In its defense to E Solutions’ action, Air

Comfort asserted, among other things, that E Solutions had materially breached the

purchase order with Air Comfort by delaying delivery of the specified HVAC equipment.

Air Comfort claimed that it had been damaged by E Solutions’ alleged failure to timely

deliver the ordered equipment, and it asserted several theories of liability in its cross-

claim against Knestrick. Air Comfort alleged that Knestrick was liable for breach of

contract by failing to pay it sums owed under the subcontract, and according to Air

Comfort, Knestrick should also be held liable for conversion and in violation of the

Prompt Pay Act. A bond claim, a claim for unjust enrichment/quantum meruit, and a

claim for contribution were also asserted against Knestrick.2

On February 24, 2015, Knestrick and Berkley filed an answer to E Solutions’

complaint, wherein they prayed that the claims against them be dismissed, and within the

same filing, Knestrick separately asserted a cross-claim against Air Comfort. In the

cross-claim, Knestrick averred it was entitled to recover $72,000.00 in liquidated

damages and alleged that it was entitled to indemnification regarding the action filed

against it by E Solutions. Answers to the cross-claims and counterclaim were thereafter

filed, and a bench trial was held in the fall of 2016.

2

The bond claim was asserted against Knestrick and Berkley.

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On March 17, 2017, the trial court entered its “Memorandum and Final

Judgment,” wherein it determined that Air Comfort was entitled to a judgment for breach

of contract against Knestrick in the amount of $15,000.00. According to the trial court,

this was the full extent of Knestrick’s liability, and the court declined to award Air

Comfort prejudgment interest. Further, the trial court dismissed Air Comfort’s claims

against E Solutions and E Solutions’ claims against Knestrick and Berkley. As for E

Solutions’ requested relief against Air Comfort, the court awarded it a judgment in the

amount of $42,847.98, plus prejudgment interest. Notably, the court’s order stated that it

was reserving any determination about attorney’s fees, expenses, and discretionary costs

until appeals in the case concluded.

Several post-trial motions were thereafter filed, and on July 7, 2017, the trial court

entered an order addressing them. The court noted that, notwithstanding its previous

reservation of certain issues, it had decided to entertain previously stayed issues “[a]t the

urging of certain of the parties.” In addition to addressing the parties’ requests for

discretionary costs, the trial court denied Air Comfort’s request for attorney’s fees.

Further, regarding attorney’s fees sought by E Solutions, Knestrick, and Berkley, the

court held that:

E Solutions is a prevailing party and is entitled to an award of reasonable

attorneys’ fees under the contract entered with Air Comfort. The Court,

however, hereby DENIES E Solutions application for attorneys’ fees,

without prejudice, because it is not accompanied by a sworn detailed

itemization of the services rendered and the time expended for those

particular services as required under Local Rule § 5.05 and Tenn. Sup. Ct.

R. 8, RPC 1.5(a)(1). This denial is without prejudice. E Solutions may

renew its request for attorneys’ fees in this Court after all appeals are

exhausted.

....

Knestrick and Berkley are prevailing parties. Knestrick is generally entitled

to attorneys’ fees under the indemnification provisions[] of the parties’

subcontract due to Air Comfort’s decision to withhold payment to E

Solutions when Air Comfort had no contractual right to do so. The Court,

however, hereby DENIES, without prejudice, Knestrick and Berkley’s

application for attorneys’ fees because it lacks the specific itemization

required by Local Rule Sec. 5.05 and Tenn. Sup. Ct. R. 8, RPC 1.5,

pending the outcome of the appeals.

Although the order was certified as final pursuant to Rule 54.02 of the Tennessee

Rules of Civil Procedure and an appeal was thereafter pursued in this Court, a different

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panel of this Court dismissed the previous appeal for lack of subject matter jurisdiction,

stating in relevant part as follows:

Here, the trial court resolved the parties’ breach of contract claims

and found that E Solutions, Knestrick, and Berkley are contractually

entitled to recover their attorney’s fees, but the court granted in part and

denied in part the request for contractual attorney’s fees, without prejudice,

directing the parties to re-submit their requests after this appeal. This order

was improvidently certified as final. Rule 54.02 “does not allow a trial

court to certify an order[ ] that disposes of only some, but not all, elements

of damages, as final and appealable.” Cooper v. Powers, No. E2011–

01065–COA–R9–CV, 2011 WL 5925062, at *6 (Tenn. Ct. App. Nov. 29,

2011). “Notably absent from Rule 54.02 is any mention of allowing the

certification as final of an order which disposes of certain elements of a

claim for damages but leaves the claim pending as to other elements.” Id.

See, e.g., Johnson v. Tanner–Peck, L.L.C., No. W2009–02454–COA–R3–

CV, 2011 WL 1330777, at *6 n.8 (Tenn. Ct. App. Apr. 8, 2011) (explaining

that an order was not appropriate for certification as final under Rule 54.02

because it did not dispose of a request for treble damages, punitive

damages, attorney’s fees and the like arising out of the same claim); Cates,

1991 WL 168620, at *4 (“Bifurcation of damages is fatal to a 54.02

certification.... While it is proper for the trial court to bifurcate the

eviden[t]iary hearings on these damages, it cannot bifurcate the appeal of

it.”). An award as to only one facet of the total damages is not properly

certifiable. Cates, 1991 WL 168620, at *4.

We reached the same conclusion on facts similar to those before us

in Toyos v. Hammock, No. W2011–01649–COA–R3–JV, 2013 WL

177417, at *16–17 (Tenn. Ct. App. Jan. 17, 2013). The trial court had

certified its judgment as final pursuant to Rule 54.02 in “an attempt to

finalize the judgment” even though the issue of attorney’s fees had not been

resolved. This Court entered a per curiam opinion finding that we lacked

jurisdiction in the matter because the trial court’s order failed to adjudicate

the request for attorney fees. We likewise find that this Court lacks

jurisdiction over the appeal in this matter.

E Sols. for Bldgs., LLC v. Knestrick Contractor, Inc., No. M2017-00732-COA-R3-CV,

2018 WL 1831116, at *4 (Tenn. Ct. App. Apr. 17, 2018) (footnote omitted), perm. app.

denied (Tenn. Aug. 9, 2018).

Following the remand of the case, the trial court addressed the outstanding issues.

In an order entered on October 16, 2018, the trial court ruled on the amount of attorney’s

fees, discretionary costs, and prejudgment interest owed to E Solutions and awarded

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Knestrick and Berkley attorneys’ fees and discretionary costs against Air Comfort. A

timely notice of appeal was filed by Air Comfort on November 8, 2018, leading to the

present appeal.

ISSUES PRESENTED

This appeal concerns a variety of issues by both Air Comfort and E Solutions. In

Air Comfort’s brief, the issues presented for our review are as follows:

1. Whether the trial court erred in dismissing Air Comfort’s claim of conversion of

construction proceeds and Prompt Pay Act claim against Knestrick.

2. Whether the trial court erred in finding that Knestrick was entitled to assess

liquidated damages against Air Comfort and only awarding Air Comfort a

judgment for $15,000.00 against Knestrick for breach of contract.

3. Whether the trial court erred in awarding E Solutions a judgment for $42,847.98

against Air Comfort.

4. Whether the trial court erred in denying Air Comfort attorney fees under the

Prompt Pay Act against Knestrick for withholding a contract payment and

retainage payment.

5. Whether the trial court erred in denying Air Comfort discretionary costs against

Knestrick.

6. Whether the trial court erred in denying Air Comfort prejudgment interest against

Knestrick.

7. Whether the trial court erred in awarding E Solutions Attorney Fees, and

Prejudgment interest against Air Comfort.

8. Whether the trial court erred in awarding Knestrick attorney fees and discretionary

costs against Air Comfort.

For its part, E Solutions raises the following issues in its appellate brief:

1. Whether the trial court erred in awarding E Solutions a judgment for [only]

$42,847.98 against Air Comfort.

2. Whether the trial court erred in awarding E Solutions attorney’s fees and

prejudgment interest against Air Comfort.

3. Whether E Solutions is entitled to an award of additional attorney’s fees on appeal.

4. Whether the trial court erred in not awarding E Solutions a judgment against

Knestrick, as principal, and Berkley, as surety, on the payment bond claim.

Knestrick and Berkley have no “Statement of the Issues” section in their brief.

-6-

STANDARD OF REVIEW

This appeal arises from a bench trial. Pursuant to Rule 13(d) of the Tennessee

Rules of Appellate Procedure, “review of findings of fact by the trial court in civil actions

shall be de novo upon the record of the trial court, accompanied by a presumption of the

correctness of the finding, unless the preponderance of the evidence is otherwise.” Tenn.

R. App. P. 13(d). We review a trial court’s conclusions on questions of law de novo, but

no presumption of correctness attaches to the trial court’s legal conclusions. Bowden v.

Ward, 27 S.W.3d 913, 916 (Tenn. 2000). With respect to a discretionary decision made

by a trial court, we review for an abuse of discretion. An abuse of discretion occurs when

a court “has applied an incorrect legal standard, has reached a decision that is illogical,

has based its decision on a clearly erroneous assessment of the evidence, or has employed

reasoning that causes an injustice to the complaining party.” Boyd v. Comdata Network,

Inc., 88 S.W.3d 203, 211-12 (Tenn. Ct. App. 2002).

DISCUSSION

As indicated above, a host of issues are presented for our review in this appeal. To

begin our discussion, we will examine the monetary judgment Air Comfort received

against Knestrick. In connection therewith, we will explore whether the amount of the

judgment was proper and whether Knestrick was entitled to apply liquidated damages to

Air Comfort’s claims for payment. Further, we will discuss whether Air Comfort’s

remedies are limited to breach of contract and examine whether other legal theories, or

other specific relief such as attorney’s fees, are properly implicated in this case.

The primary dispute between Air Comfort and Knestrick concerns whether

Knestrick paid all amounts owed to Air Comfort under the subcontract entered into

between the two parties. We address this matter not only in connection with Air

Comfort’s breach of contract claim, but also with respect to Air Comfort’s request for

relief pursuant to the Prompt Pay Act, see Tenn. Code Ann. § 66-34-101 et seq. Of

considerable importance to the discussion is Knestrick’s contention that it had the right to

withhold payments and assess liquidated damages. The proof at trial showed that

Knestrick assessed $72,000.00 in liquidated damages against Air Comfort due to delayed

performance regarding the HVAC work for the project.

Curiously, although the trial court awarded Air Comfort a judgment for breach of

contract upon finding that it should receive a credit for certain of the liquidated damages

that had been assessed against it by Knestrick for delayed performance, the court did not

find that any violation of the Prompt Pay Act had been committed. It reached this

conclusion notwithstanding the fact that Air Comfort had made applications for payment,

provided Knestrick notice of nonpayment, and Knestrick had not paid all the amounts

owed. The trial court reasoned that a claim under the Prompt Pay Act was “not

established” given its “conclusion that the . . . liquidated damages provisions were legally

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enforceable.” In our view, there is a lack of cohesion between the trial court’s factual

findings and its legal conclusions. Indeed, even assuming that Knestrick was entitled to

assess some amount of liquidated damages against Air Comfort, the trial court itself

clearly held that not all of the funds owed to Air Comfort had been paid, as it refused to

sanction the entirety of Knestrick’s $72,000.00 liquidated damages assessment. As the

trial court’s order confirms that additional payment was owed to Air Comfort for its work

under the subcontract, and the record reflects that this payment was not made despite

applications for payment3 and notice of nonpayment submitted to Knestrick, the

conclusion that there was no Prompt Pay Act violation is untenable.

Knestrick vigorously maintains there was no Prompt Pay Act violation because it

was entitled to withhold payment from Air Comfort. It notes that under Tennessee Code

Annotated section 66-34-303, a contractor may withhold a portion of payment provided

that such withheld payment is in accordance with the contract between the contractor and

subcontractor, see Tenn. Code Ann. § 66-34-303, and here, Knestrick notes that the

subcontract at issue allowed for a withholding of liquidated damages. No doubt, the

Knestrick-Air Comfort subcontract did provide for liquidated damages, but as already

noted, the trial court concluded that Knestrick withheld certain liquidated damages to

which it was not entitled. Inasmuch as Knestrick has not challenged the trial court’s

determination that a credit, and resulting judgment, was owed to Air Comfort regarding

the withheld liquidated damages, there is no reasonable dispute that money was owed to

Air Comfort when it sought payment from Knestrick in its renewed payment application.

Moreover, even assuming that Knestrick had properly withheld the entirety of the

originally assessed $72,000.00 in liquidated damages, the record reflects that additional

sums were still owed to Air Comfort. In this vein, we note that Knestrick actually

withheld more than $72,000.00 from the balance owed Air Comfort. In a renewed

payment application submitted to Knestrick after the project was completed, Air Comfort

requested a sum totaling $85,960.50 for unpaid HVAC work on the project. Absent any

application of liquidated damages, which is a subject of controversy on appeal, there does

not appear to be any reasonable dispute that Air Comfort earned this amount with respect

to its performance on the Centennial Sportsplex expansion. The proof readily showed

that the HVAC equipment was installed and that the project reached substantial

completion. Having performed the contracted work, Air Comfort was owed the balance

of its subcontract amount absent a valid application of offsetting damages. Yet, when

pressed by this Court at oral argument how some amount was not owed to Air Comfort

considering $85,960.50 in work under the contract had not been paid and only

$72,000.00 in liquidated damages had been assessed, counsel for Knestrick argued that

3

In its brief on appeal, Knestrick remarks that applications for payment were made when Air Comfort’s

work was not complete, specifically claiming that certain evidence at trial showed that all conditions

precedent to final payment were not technically satisfied until May 12, 2014. This argument aside, we

note that the record contains evidence that a renewed payment application regarding the amount sought

by Air Comfort was made after that date.

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his client could have assessed 102 days of liquidated damages. Although such an

assessment, if permissible, would have clearly vitiated any right to payment in Air

Comfort’s favor, Knestrick of course did not assess 102 days of liquidated damages.

Moreover, Knestrick has not objected to the trial court’s finding that the assessment of 72

days of liquidated damages was itself improper.

In light of the above, although we certainly agree with the trial court that Air

Comfort is entitled to a judgment for breach of contract, we respectfully disagree that the

Prompt Pay Act was not violated. Simply put, Air Comfort was owed money when it

submitted a renewed payment application after the completion of the project, and

Knestrick never made payment after receiving notice of nonpayment. This failure to pay

not only makes Knestrick liable under the contract, but pursuant to the Prompt Pay Act,

makes Knestrick potentially subject to an assessment of attorney’s fees. See Tenn. Code

Ann. § 66-34-602 (providing that where payment is not made after notice of nonpayment,

the notifying party may seek relief in chancery court, where reasonable attorney’s fees

“may be awarded against the nonprevailing party”).

Before addressing the matter of attorney’s fees under the Prompt Pay Act, we will

first review the propriety of the specific contractual amount that the trial court awarded to

Air Comfort. As noted earlier, the trial court concluded that Air Comfort was entitled to

a judgment in the amount of $15,000.00. Although we can ascertain from where the trial

court arrived at this number, see infra, the trial court’s ruling on this issue has still

confused both this Court and the parties4 on appeal. As further detailed herein, we

respectfully conclude that the evidence preponderates in favor of a higher breach of

contract judgment than that awarded by the trial court.

The current judgment of $15,000.00 clearly follows from the trial court’s effective

conclusion that 57 days of liquidated damages, which is 15 days less than 72 days, was

the outer limit of a permissible assessment of liquidated damages under the subcontract.

In relevant portion, the trial court’s order stated as follows:

[T]he Court determines that Air Comfort is . . . entitled to a fifteen-day

credit toward the seventy-two day liquidated damages assessment made by

Knestrick against Air Comfort.

....

Air Comfort, therefore, is entitled to a breach of contract judgment

against Knestrick in the base amount of $15,000.00.

4

We note that at oral argument, upon questioning by the panel, counsel for Air Comfort and counsel for

Knestrick both articulated some confusion as to how the trial court arrived at a judgment of $15,000.00.

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Although the court’s order therefore unmistakably sets out its basis of Air Comfort’s

specific $15,000.00 judgment against Knestrick, we fail to comprehend how the

judgment is an accurate one based upon the record. Indeed, if an assessment for only 57

days of liquidated damages was proper and the unpaid balance for completed work on Air

Comfort’s subcontract was over $85,000.00, the judgment should have been higher than

$15,000.00. Specifically, assuming that Knestrick was entitled to assess 57 days’ worth

of liquidated damages, the evidence preponderates in favor of a finding that the judgment

should have been $28,960.50 ($85,960.50-$57,000.00).

The propriety of such a modified judgment is itself dependent upon reaching a

conclusion that an assessment of liquidated damages for 57 days was even proper. This

issue requires our review herein, because perhaps not unsurprisingly, Air Comfort argues

that Knestrick was not entitled to assess any liquidated damages against it. For the

reasons set forth below, we are in agreement with Air Comfort’s position on this issue.5

As Air Comfort has pointed out, a party is not allowed to recover liquidated

damages “where he is responsible for or has contributed to the delay or nonperformance

alleged as breach.” V.L. Nicholson Co. v. Transcon Inv. & Financial Ltd., Inc., 595

S.W.2d 474, 484 (Tenn. 1980). Applying this principle in Airline Construction, Inc. v.

Barr, 807 S.W.2d 247 (Tenn. Ct. App. 1990), this Court held that the trial court in that

case should not have awarded liquidated damages to a party that had “at the very least

contributed to some of the delays” on a construction project. Id. at 262. As we

explained:

Although Barr and the trial court have both pointed to numerous

delays that were attributable to Airline, we cannot hold the plaintiff liable

for all the delays merely because Airline’s delays may have outweighed

those occasioned by Barr. The law in Tennessee is contrary to this

conclusion. Liquidated damages will not be awarded to one that has

contributed to or mutually caused the delay or breach. V.L. Nicholson

Company v. Transcon Investment and Financial Ltd., Inc., 595 S.W.2d at

484, citing Glassman Const. Co., Inc. v. Maryland City Plaza, Inc., 371

F.Supp. 1154 (D.C. Md. 1974), aff’d, 530 F.2d 968 (4th Cir. 1975); 9

Tennessee Jurisprudence, Damages, § 29 (1983).

5

Although we agree with Air Comfort’s position that Knestrick should not be allowed to recover

liquidated damages in connection with this case, we do not find favor in its specific argument that

liquidated damages are unavailable due to a withdrawal of a liquidated damages claim. To the extent that

Knestrick “withdrew” its claim for liquidated damages, Knestrick merely withdrew a request for a

monetary judgment. Indeed, whereas a monetary claim for liquidated damages had clearly been asserted,

counsel for Knestrick clarified at trial that Knestrick was not actually seeking a specific monetary

judgment for such damages. Instead, counsel made clear that Knestrick was simply seeking confirmation

that it had been entitled to previously withhold such funds based on a right to liquidated damages.

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The defendant in this case could have recovered “actual” delay

damages, See Mayo, Tennessee Law of Damages, § 15-5 (1988). However,

absent proof of such damages there can be no award.

Id.

After Knestrick raised the propriety of its right to assess liquidated damages in its

cross-claim against Air Comfort,6 Air Comfort filed an answer denying that it was

responsible for liquidated damages. Among other things, it asserted that Knestrick had

delayed the project and construction of the building at the Centennial Sportsplex

expansion. This argument is not without substantial support in the record. Similar to the

Airline case, the party claiming liquidated damages here—Knestrick—clearly contributed

to a portion of the delay on the project. The evidence at trial showed that the completion

of Air Comfort’s HVAC installation work was dependent on the existence of a building,

and roof, at the project site. The evidence at trial reflected that Knestrick was responsible

for delay relative to the construction of the building that impacted Air Comfort’s ability

to perform. Indeed, when Knestrick’s owner, William Knestrick, was asked at trial

whether any causes of delay on the project were Knestrick’s responsibility, he responded,

“Now I realize that to be the case.” Regarding the sequence of activities on the project,

we note that several of Air Comfort’s tasks on the project were scheduled to start in the

fall of 2013. For example, Knestrick’s Vice President of Operations, Jerry Thurman,

testified specifically concerning two activities, noting that there had been scheduled start

dates of September 30, 2013 and October 21, 2013. Air Comfort’s ability to complete its

work, however, was hindered given the lack of a building on the site. When asked at trial

if a building had been erected as of October 2013 for Air Comfort to install mechanical

equipment, Mr. Thurman responded, “I would doubt that since the slabs [were] not

poured until the 4th of November.” Mr. Thurman’s testimony further indicated that

although Knestrick had not completed the slab until November 4, 2013, such work had

originally been scheduled for completion many months earlier, in July 2013. Mr.

Thurman testified that the pouring of the slab was a critical path activity, confirming that

the building on the site could not be built in the absence of a slab on which to put the

building. Necessarily, therefore, the delay in the slab pouring caused delays in the

construction of the building, thereby contributing to delayed performance of Air Comfort.

According to Mr. Thurman’s testimony, it was a “fair statement” that the building may

have “been up” by early December 2013 but not all “dried in.” For a building to be

considered “dried in,” Mr. Thurman indicated that it would need, among other things, a

roof.

6

Although the cross-claim specifically sought a judgment for $72,000.00 against Air Comfort, Knestrick,

as we detailed in a previous footnote, clarified at trial that it was not actually seeking a judgment for that

amount in liquidated damages, but rather, confirmation that the previous withholding of that amount as

liquidated damages had been proper.

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The proof at trial showed that delays on the project were evident fairly early on in

the process. Charles Lampley, a senior project manager at Air Comfort, testified that in

July 2013, after the subcontract had been signed, he went to the project site. Regarding

the status of construction by Knestrick at that time, he stated, “Basically, there was no

work done on site.” Timeline notes made by Chris Koster, Special Projects Manager

with Metro’s Board of Parks and Recreation, detailed several aspects of the delay on the

project. A note regarding the project status on July 23, 2013 indicated as follows:

MP demands a recovery action plan from KNI to make up time on the

schedule. MP requests KNI to increase needed manpower on site, increase

hours and/or weekends, cut float time from the schedule and look at critical

path activities to show a method of making up time on the schedule. MP

informs KNI that this request has been outstanding for 2 months now and

expects it to be delivered to MP by close of business 8.2.13.

A subsequent note regarding August 2, 2013 indicated that the requested recovery plan

had not been delivered. Another note regarding a time period spanning from July 2013 to

August 2013 indicated as follows: “3 weeks passed without demo of site being

completed despite assurances from KNI that this would be a 2 day project.”

Included among the many detailed project delays, Mr. Koster’s notes have several

entries regarding the delayed slab pouring for the project. A note regarding September

17, 2013 stated that “KNI indicates slab pour will now occur at the end of the month.”

Several subsequent notes for October 2013 detail the slab pouring not having been

completed. Given the delays on the project, Metro expressed its concern to Knestrick. In

an email sent on October 9, 2013, the Director of the Parks Department noted the

“significant contractor delay” and stated that whereas the project should have then been

past 50% completion, payment applications indicated it was only at about 10%

completion. The email was critical of Knestrick’s attention to the matter, noting in

relevant part as follows:

Our project manager has been requesting a Recovery Plan from

Knestrick since June demonstrating how you intend to devote resources and

manage the construction to get back on schedule. As of this month we still

have not seen an effort to provide a recovery plan or devote the resources

on site to make up lost time. At this time, this department finds the

response by your company to these requests and effort to recover time to be

insufficient and unacceptable.

Therefore, the Metro Purchasing director and I would like to meet

with you, or whoever is most appropriate within the Knestrick

administration, to discuss these and other issues related to performance on

this contract and what options are available moving forward.

- 12 -

Knestrick eventually received an extension from Metro to reach substantial

completion, and although no formal amendment was reached between Knestrick and Air

Comfort, Mr. Thurman testified that the awarded 55-day extension was passed on to

subcontractors. The proof showed that the extension was not necessitated by Air

Comfort in any way. Moreover, the proof showed that measuring Air Comfort’s

performance relative to such an extension was improper. Whereas Knestrick had

originally sought an 84-day extension, it was untimely in seeking this request from

Metro. The trial court itself noted that there were “delays attendant to Knestrick’s failure

to obtain a full 84-day extension of the original Project schedule,” and therefore, the court

was of the opinion that a full measure of liquidated damages was improper. In discussing

the insufficiency of the awarded extension and taking note of delays attributable solely to

Knestrick, the trial court stated as follows:

The Court concludes that adding 55 days was an insufficient extension for

delays that cannot be attributable to any party to this lawsuit, except

Knestrick. Because of this delay, the pouring of the slab, for example, was

delayed from a completion date of on or about July 1, 2013 (as originally

scheduled) until November 4, 2013 (as completed). Knestrick asked for 84

days from Metro but was only awarded 55 days, in part, because Knestrick

did not request the extension within the 21-day period for such requests

prescribed by the Construction Contract. Similarly, Knestrick did not

challenge Metro’s award of 55 days or bring Metro into this litigation

because it apparently wanted to keep its good business relationship with

Metro. Unfortunately, this desire to keep a good business relationship with

Metro should not allow Knestrick to summarily pass on all of the liquidated

damages it sought to pass on to Air Comfort.

The trial court nonetheless sanctioned the assessment of liquidated damages by

Knestrick against Air Comfort. In light of the court’s own findings about Knestrick’s

delay and the proof that Knestrick had contributed to the delay on the project and Air

Comfort’s performance, we hold that Knestrick’s assessment of liquidated damages

against Air Comfort was improper. Again, a party is not allowed to recover liquidated

damages “where he is responsible for or has contributed to the delay or nonperformance

alleged as breach.” V.L. Nicholson Co., 595 S.W.2d at 484. Actual delay damages could

have been pursued against Air Comfort, see Airline Constr., Inc., 807 S.W.2d at 262, but

the trial court’s approval of Knestrick’s assessment of liquidated damages was improper

in light of Knestrick’s clear contribution to the delay. Moreover, case law instructs that it

would matter not if Air Comfort had been responsible for delays that outweighed those

occasioned by Knestrick. See id. (“Although Barr and the trial court have both pointed

to numerous delays that were attributable to Airline, we cannot hold the plaintiff liable

for all the delays merely because Airline’s delays may have outweighed those occasioned

by Barr. The law in Tennessee is contrary to this conclusion. Liquidated damages will

not be awarded to one that has contributed to or mutually caused the delay or breach.”).

- 13 -

We, therefore, conclude that the evidence preponderates in favor of a finding that the

amount owed to Air Comfort is $85,960.50. We hereby modify Air Comfort’s judgment

against Knestrick in this amount.7

Turning to the question of attorney’s fees, and as mentioned earlier herein,

Knestrick’s failure to pay Air Comfort following Air Comfort’s notice of nonpayment

makes it potentially subject to an assessment of attorney’s fees under the Prompt Pay Act.

See Tenn. Code Ann. § 66-34-602 (providing that where payment is not made after notice

of nonpayment, the notifying party may seek relief in chancery court, where reasonable

attorney’s fees “may be awarded against the nonprevailing party”). Specifically, the

statute provides that fees may be awarded if the nonprevailing party has acted in bad

faith. Classic City Mech., Inc. v. Potter S. E., LLC, No. E2015-01890-COA-R3-CV,

2016 WL 5956616, at *17 (Tenn. Ct. App. Oct. 14, 2016) (quoting Tenn. Code Ann. §

66-34-602(b)). In discussing what constitutes bad faith, a previous panel of this Court

stated as follows:

Although a finding of bad faith is a prerequisite to an award of

attorney’s fees under the statute, what constitutes bad faith is not statutorily

defined. Previous courts have determined that “acts taken in bad faith

involve knowing or reckless disregard for contractual rights or duties.”

Madden Phillips Constr., Inc., 315 S.W.3d at 829 (citation omitted).

Moreover, in Trinity Industries, Inc. v. McKinnon Bridge Co., Inc., 77

S.W.3d 159 (Tenn. Ct. App. 2001), we affirmed a trial court’s finding that a

company had not acted in bad faith when we concluded that we had “no

doubt that [the company’s] principals honestly believed that their company

did not owe the money claimed by [the plaintiff].” Id. at 181.

Id.

On appeal, Knestrick argues that attorney’s fees are improper for two reasons.

First, it argues that it cannot have liability for attorney’s fees because it is a prevailing

party concerning the Prompt Pay Act claim asserted. Second, it argues that certain

7

In addition to pursuing a contractual claim and seeking relief under the Prompt Pay Act, Air Comfort

has advanced a separate common law conversion claim. We find no basis to disturb the trial court’s

rejection of this claim. As one court has noted, “[a] tort action only arises when the act constituting the

contract breach also constitutes a breach of a common law duty independent of the contractual

relationship.” Yinghong Mach. Int’l Ltd. v. Wholesale Equip., Co., No. 2:13-cv-02671-JTF-cgc, 2014 WL

12887673, at *4 (W.D. Tenn. Oct. 17, 2014) (citing Green v. Moore, No. M2000-03035-COA-R3-CV,

2001 WL 1660828, at *3 (Tenn. Ct. App. 2001)). Here, the alleged conversion is predicated on

Knestrick’s failure to pay sums allegedly owed in accordance with the subcontract. Being necessarily

founded upon a breach of contract, we are of the opinion that the claim fails. See id. (dismissing

conversion claim for failure to state a claim when the plaintiff alleged breach of contract and failed to

show a duty separate and apart from a contractual obligation).

- 14 -

findings by the trial court demonstrate that it acted in good faith. We have already

dispensed with the first argument and have concluded that the Prompt Pay Act was

violated. Thus, attorney’s fees may be awarded if there was bad faith on the part of

Knestrick. This requires us to confront Knestrick’s second argument concerning the trial

court’s findings. Although the trial court appeared to dismiss Air Comfort’s claim for

attorney’s fees on the basis that the Prompt Pay Act was not violated, the court also made

a number of findings that pertain to the issue of Knestrick’s bad faith, or lack thereof.

Indeed, Knestrick correctly acknowledges that the trial court held that the parties “had a

good faith dispute.” Moreover, we observe that the court held that Knestrick’s

withholding of money was “not wrongful” and “was accomplished in keeping with a

claim of right provided under an enforceable contract between the parties.” Respectfully,

based on our review of this voluminous record, we are of the opinion that the evidence

preponderates in favor of a finding that Knestrick did act in bad faith. Indeed, acts in bad

faith can include those that involve a “reckless disregard” for contractual rights. Id. We

are of the opinion that the evidence readily establishes such a standard here, because

again, even though $72,000.00 in liquidated damages was assessed, Knestrick failed to

pay for completed work under the subcontract that it acknowledged totaled $85,960.50.

The amount withheld was thus undeniably several thousand dollars more than the

claimed liquidated damages. At a minimum, the evidence supports a conclusion that

Knestrick acted in reckless disregard with regard to its withholding of the difference

between the balance of the unpaid work completed by Air Comfort and the assessed

liquidated damages.8 In light of our determination that the Prompt Pay Act was violated

and our conclusion that the evidence preponderates in favor of a finding that Knestrick

acted in bad faith, we hereby remand the case to the trial court for a reconsideration of

Air Comfort’s request for attorney’s fees. See Tenn. Code Ann. § 66-34-602(b)

(emphasis added) (“Reasonable attorney’s fees may be awarded against the nonprevailing

party; provided, that such nonprevailing party has acted in bad faith.”).

Regarding the discretionary costs and attorney’s fees awarded against Air

Comfort, we hereby reverse these awards. As to the issue of discretionary costs, which is

governed by Rule 54.04 of the Tennessee Rules of Civil Procedure, this Court has

previously outlined when such costs may be awarded and what factors should accompany

a trial court’s ruling on the matter:

A “prevailing party” may request discretionary costs, such as

“reasonable and necessary court reporter expenses for depositions or trials,

[and] reasonable and necessary expert witness fees for depositions (or

stipulated reports) and for trials.” Tenn. R. Civ. P. 54.04(2). The purpose

of awarding discretionary costs is to help “make

8

Although Knestrick advances the argument that it could have assessed more than $72,000.00 in

liquidated damages, we note again that it did not do so. Moreover, as mentioned earlier in this Opinion, it

has not challenged the trial court’s determination that the liquidated damages it did assess were excessive.

- 15 -

the prevailing party whole,” not to punish the losing party. Owens v.

Owens, 241 S.W.3d 478, 496–497 (Tenn.Ct.App.2007).

When deciding whether to award discretionary costs under Rule 54.04(2),

the trial court should:

(1) determine whether the party requesting the costs is the

“prevailing party,”

(2) limit awards to the costs specifically identified in the rule,

(3) determine whether the requested costs are necessary and reasonable, and

(4) determine whether the prevailing party has engaged in conduct during

the litigation that warrants depriving it of the discretionary costs to which it

might otherwise be entitled.

Mass. Mut. Life Ins. Co. v. Jefferson, 104 S.W.3d 13, 35–36 (Tenn. Ct.App.

2002) (citations omitted). The burden is on the movant to convince the trial

court that it is entitled to discretionary costs, Carpenter v. Klepper, 205

S.W.3d 474, 490 (Tenn. Ct. App. 2006); however, as a general matter,

courts should “award discretionary costs to a prevailing party if the costs

are reasonable and necessary and if the prevailing party has filed a timely

and properly supported motion.” Mass. Mut. Life Ins. Co., 104 S.W.3d at

35.

Rule 54.04(2) costs expressly address themselves to the sound discretion of

the trial court. Stalsworth v. Grummons, 36 S.W.3d 832, 835

(Tenn.Ct.App.2000). Accordingly, trial courts are free to apportion the

costs between the parties as “the equities of each case demand.” Sanders v.

Gray, 989 S.W.2d 343, 345 (Tenn. Ct. App. 1998). Therefore, on appeal,

this Court will not substitute our own discretion for that of the trial

court. State ex rel. Vaughn v. Kaatrude, 21 S.W.3d 244, 248 (Tenn. Ct.

App. 2000).

Freeman v. CSX Transp., Inc., 359 S.W.3d 171, 179–80 (Tenn. Ct. App. 2010).

In this case, the trial court concluded that Knestrick, not Air Comfort, was entitled

to discretionary costs. In so ruling, the court held that Air Comfort was not a prevailing

party and noted that it had not established a Prompt Pay Act claim. In contrast, the trial

court concluded that Knestrick was a prevailing party. Given our previous discussion and

the relief awarded herein in Air Comfort’s favor, we are of the opinion that Air Comfort

should properly be considered the prevailing party as to its claims against Knestrick.

Consequently, upon remand of this case, the trial court is directed to consider whether Air

Comfort, as the prevailing party, is entitled to discretionary costs, provided Air Comfort

files a new motion for discretionary costs within thirty days after the filing of the

- 16 -

mandate by this Court. See Tenn. R. Civ. P. 54.04(2) (“In the event an appeal results in

the final disposition of the case, under which there is a different prevailing party than the

prevailing party under the trial court’s judgment, the new prevailing party may request

discretionary costs by filing a motion in the trial court, which motion shall be filed and

served within thirty (30) days after filing of the appellate court’s mandate in the trial

court.”).

Also at issue is Air Comfort’s request for prejudgment interest. In denying

prejudgment interest to Air Comfort, the trial court held as follows: “Given that

Knestrick withheld the liquidated damages against Air Comfort under a claim of right

under an enforceable liquidated damages provision and given that the amount of potential

damages was not necessarily liquidated or ascertainable, the Court declines to award Air

Comfort prejudgment interest against Knestrick.” According to Air Comfort, this ruling

should be reversed. For the reasons that follow, we agree.

As pointed out by Air Comfort, trial courts are authorized to award prejudgment

interest pursuant to Tennessee Code Annotated section 47-14-123.9 Although the

decision to make such an award is discretionary, see Story v. Lanier, 166 S.W.3d 167,

181 (Tenn. Ct. App. 2004) (noting that a trial court “is vested with considerable

discretion when determining whether prejudgment interest is warranted”), a trial court’s

action is not immunized from challenge on appeal. Indeed, “appellate deference is not

synonymous with rubber stamping a trial court’s decision.” Scholz v. S.B. Int’l, Inc., 40

S.W.3d 78, 82 (Tenn. Ct. App. 2000).

In discussing the relevant considerations that must be taken into account regarding

a claim for prejudgment interest, the Tennessee Supreme Court stated as follows in Myint

v. Allstate Insurance Co.:

Several principles guide trial courts in exercising their discretion to

award or deny prejudgment interest. Foremost are the principles of equity.

Tenn. Code Ann. § 47–14–123. Simply stated, the court must decide

whether the award of prejudgment interest is fair, given the particular

circumstances of the case. In reaching an equitable decision, a court must

keep in mind that the purpose of awarding the interest is to fully

compensate a plaintiff for the loss of the use of funds to which he or she

was legally entitled, not to penalize a defendant for wrongdoing. Mitchell v.

Mitchell, 876 S.W.2d 830, 832 (Tenn.1994); Otis, 850 S.W.2d at 446.

9

We recognize that inasmuch as we have determined that a violation of the Prompt Pay Act occurred,

there appears to be an argument that some interest should have been awarded as a matter of right. Indeed,

the Prompt Pay Act provides that “[a]ny payment not made in accordance with this chapter shall accrue

interest.” Tenn. Code Ann. § 66-34-601. However, no such issue was advanced by Air Comfort, who

limited its argument regarding interest to the interest available under Tennessee Code Annotated section

47-14-123.

- 17 -

In addition to the principles of equity, two other criteria have

emerged from Tennessee common law. The first criterion provides that

prejudgment interest is allowed when the amount of the obligation is

certain, or can be ascertained by a proper accounting, and the amount is not

disputed on reasonable grounds. Mitchell, 876 S.W.2d at 832. The second

provides that interest is allowed when the existence of the obligation itself

is not disputed on reasonable grounds. Id. (citing Textile Workers Union v.

Brookside Mills, Inc., 205 Tenn. 394, 402, 326 S.W.2d 671, 675 (1959)).

We note that these criteria, if strictly construed, could prohibit the

recovery of prejudgment interest in the vast majority of cases. Indeed, only

a liquidated claim, for which prejudgment interest is already recoverable as

a matter of right under Tenn.Code Ann. § 47–14–109, can truly be

considered an obligation of certain and indisputable amount. Further, it is

safe to say that, at trial, defendants usually can articulate at least one good

reason for disputing the existence of the obligation, for were it otherwise,

defendants would rarely survive summary judgment. Finally, the focus on

whether the defendant had a reasonable defense ignores the principle that

prejudgment interest is not a penalty imposed on the defendant for

indefensible conduct.

Not surprisingly, an analysis of relevant case law reveals that these

criteria have not been used to deny prejudgment interest in every case

where the defendant reasonably disputed the existence or amount of an

obligation. More typically, courts either use the certainty of a claim as

support for an award of prejudgment interest, or they do not discuss the

certainty of the claim at all. See, e.g., Mitchell, 876 S.W.2d at 832

(allowing the award of interest where the existence and amount of the

obligation under a settlement agreement were not reasonably

disputed); Otis, 850 S.W.2d at 446 (allowing the award of interest to a

plaintiff whose right to recover under a fire insurance contract was

reasonably disputed on the grounds of arson and

misrepresentation); Performance Systems, Inc. v. First American Nat.

Bank, 554 S.W.2d 616, 619 (Tenn.1977) (allowing the award of interest,

although the existence of the defendant's obligation under the lease was

reasonably disputed); Johnson v. Tennessee Farmers Mut. Ins. Co., 556

S.W.2d 750, 752 (Tenn.1977)(allowing the award of interest, although the

amount of recovery under the insurance claim was reasonably

disputed); Uhlhorn v. Keltner, 723 S.W.2d 131, 138 (Tenn.App.1986)

(allowing award of interest in a boundary dispute case, where the existence

of any obligation to pay rent and the amount of rent due were both

reasonably disputed); Schoen v. J.C. Bradford & Co., 667 S.W.2d 97, 101–

- 18 -

02 (Tenn.App.1984)(rejecting argument that prejudgment interest should

not be imposed when defendant appealed in good faith).

Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927–28 (Tenn. 1998) (footnote omitted).

Whereas the Supreme Court noted that past decisions existed where interest was not

allowed when there was a good faith dispute, the Supreme Court stated that such cases

were overruled “[t]o the extent . . . [they] suggest[ed] that prejudgment interest can never

be awarded when a claim is reasonably disputed.” Id. at 928 n.7.

Writing for this Court, then Judge Koch explained the Supreme Court’s action in

Myint as follows:

As we construe the Myint decision, the Tennessee Supreme Court has

shifted the balance to favor awarding prejudgment interest whenever doing

so will more fully compensate plaintiffs for the loss of use of their funds.

Fairness will, in almost all cases, require that a successful plaintiff be fully

compensated by the defendant for all losses caused by the defendant,

including the loss of use of money the plaintiff should have received. That

is not to say that trial courts must grant prejudgment interest in absolutely

every case. Prejudgment interest may at times be inappropriate such as (1)

when the party seeking prejudgment interest has been so inexcusably

dilatory in pursuing a claim that consideration of a claim based on loss of

use of the money would have little weight; (2) when the party seeking

prejudgment interest has unreasonably delayed the proceedings after suit

was filed; or (3) when the party seeking prejudgment interest has already

been otherwise compensated for the lost time value of its money.

Scholz, 40 S.W.3d at 83 (internal citations omitted).

In light of the Supreme Court’s discussion in Myint and this Court’s discussion in

Scholz, we conclude that the trial court’s denial of prejudgment interest to Air Comfort

was in error. Initially, we fail to comprehend how the court concluded that “the amount

of potential damages was not necessarily . . . ascertainable.” There was not any dispute

that the HVAC work had been performed and completed, and further, it is clear that the

work had a certain value under the subcontract. No doubt, Knestrick defended Air

Comfort’s claim for damages by relying on its own assessment of liquidated damages,

but it seems evident that the amount of damages was ascertainable upon resolution of the

liquidated damages question. Indeed, the calculation of damages, properly implemented,

could have been achieved by simply subtracting the amount of any permissible liquidated

damages from the balance owed under the subcontract.

Additionally, it appears that the trial court lost sight of the economic purpose of

prejudgment interest. Awards of prejudgment interest are “based on the recognition that

- 19 -

a party is damaged by being forced to forego the use of its money over time.” Id. at 82.

Interest is awarded, not to punish a defendant, but to compensate the wronged party. Id.

Thus, whereas the bad faith, or lack thereof, of a defendant is not really the proper focal

point, the trial court here appeared to place emphasis on this consideration, specifically

noting as follows in its denial of prejudgment interest: “Given that Knestrick withheld

the liquidated damages against Air Comfort under a claim of right under an enforceable

liquidated damages provision . . . the Court declines to award Air Comfort prejudgment

interest.” Knestrick’s own brief characterizes the court’s finding as determining that

“Knestrick operated under a good faith claim of right.” This proffered justification is a

significantly devalued one in light of the Myint and Scholz decisions, and here, we are of

the opinion that it cannot properly be invoked to deny Air Comfort prejudgment interest.

Again, “[f]airness will, in almost all cases, require that a successful plaintiff be fully

compensated by the defendant for all losses caused by the defendant, including the loss of

use of money the plaintiff should have received.” Id. at 83. The trial court’s cited

justifications do not survive scrutiny here, and there is no question that Air Comfort has

been deprived of money that it should have received.10 We reverse the trial court’s denial

of prejudgment interest to Air Comfort and remand the case with instructions to calculate

and award Air Comfort the prejudgment interest to which it is entitled.

To briefly recap, Air Comfort should be considered a prevailing party in its

litigation against Knestrick, which, as noted, has resulted in a much higher modified

judgment herein. The award of attorney’s fees against Air Comfort is reversed, as is the

award of discretionary costs. The trial court is directed to reconsider Air Comfort’s

request for attorney’s fees upon remand, and, if a new motion for discretionary costs is

timely filed by Air Comfort, is directed to consider that issue as well. Further, as noted,

we agree with Air Comfort that the trial court erred in denying it prejudgment interest.

Having addressed the various questions between Air Comfort and Knestrick, we

now turn to the points of dispute between E Solutions and Air Comfort. As noted earlier,

the trial court awarded E Solutions a judgment in the amount of $42,847.98. While Air

Comfort claims that the trial court erred in awarding E Solutions any judgment, E

Solutions argues that the awarded judgment was insufficient. For the reasons that follow,

we agree with E Solutions.

The primary dispute between Air Comfort and E Solutions relates to Air

Comfort’s failure to pay for the equipment it purchased from E Solutions. Testimony at

trial revealed that the amount unpaid from certain invoices was $52,847.98, but, when

awarding E Solutions a judgment, the trial court reduced this amount by $10,000.00 upon

10

Knestrick obviously disputes that Air Comfort is entitled to the full sum it has claimed, but as we have

noted, even Knestrick has not challenged the trial court’s decision to award some type of monetary

judgment to Air Comfort. Indeed, regarding the credit and resulting judgment afforded to Air Comfort by

the trial court, Knestrick states as follows in its brief: “Knestrick avers that the assessment [of the credit]

was a proper resolution . . . and should not be overturned on appeal.”

- 20 -

finding that E Solutions was responsible for ten days of delay on the project. In support

of its position that no judgment should have been awarded to E Solutions, Air Comfort

claims that E Solutions materially breached the contract between the two parties by

failing to deliver equipment on or before December 13, 2013. We disagree. Although

the purchase order recited a December 13, 2013 delivery date, the attached terms and

conditions, as we have already noted, indicated that shipment dates were estimates only.

Specifically, the terms of the contract provided that “[n]o valid contract may be made to

ship within or at a specified time unless in writing, signed by an authorized signatory of

Seller.” There was no evidence of any such authorization in this case. Moreover,

testimony at trial, from representatives of both E Solutions and Air Comfort, revealed

that there was no expectation that all equipment would be delivered by December 13.

According to Brent Bill, account manager at E Solutions, his client waited to order

equipment in order to align delivery of the equipment with the actual need for the

equipment:

I was waiting to be released by Air Comfort and I had conversations with

[Mr. Lampley] asking when we should release that equipment.

Part of the flow of the job, like we mentioned before, is delivering

the equipment when it best suits them so they do not have to incur storage

fees or transfer fees. So we were trying to provide it just in time for the

delivery of the equipment.

Although Mr. Lampley’s testimony was somewhat contradictory at places, it did indicate

that Air Comfort did not expect delivery of the equipment before December 13 given the

lead times. Thus, aside from the fact that the contract did not obligate E Solutions to

deliver equipment on or before the claimed December 13 date, there was testimony on

both sides evidencing a lack of expectation of any such delivery.

Moreover, as previously stated, the contract between the two parties provided that

E Solutions’ duty to perform was contingent upon, among other things, the “inability to

procure materials from the usual sources of supply” and other causes beyond its

“reasonable control.” Evidence at trial showed that when E Solutions ordered equipment,

it ran into issues of equipment not being available. These manufacturing delays, the court

found, were “on balance” outside of E Solutions’ control.

In light of all the above, we find no error in the trial court’s conclusion that Air

Comfort was responsible for paying for the equipment that E Solutions provided. We

respectfully disagree, however, with the trial court’s decision to reduce the amount of E

Solutions’ judgment by $10,000.00. As correctly noted by E Solutions, the trial court,

upon stating that E Solutions was responsible for ten days of delay, essentially passed

down to E Solutions $10,000.00 in liquidated damages that had been assessed against Air

Comfort. We agree with E Solutions that this was error. E Solutions was not a party to

- 21 -

Air Comfort’s contract with Knestrick, nor did the E Solutions-Air Comfort contract

contain a provision allowing for an assessment of liquidated damages. The damages

assessed were not in any way foreseeable or tied to a contractual basis in the parties’

contract. Even assuming there were delays attributable to E Solutions as the court found,

Air Comfort did not present any proof for damages outside of what was in essence a

liquidated damages assessment. We therefore agree with E Solutions that there was no

basis upon which to reduce the judgment to $42,847.98. We hereby enter a modified

judgment in favor of E Solutions against Air Comfort in the amount of $52,847.98.

In addition to awarding E Solutions a base monetary judgment against Air

Comfort for breach of contract, the trial court awarded E Solutions attorney’s fees and

prejudgment interest. On appeal, Air Comfort raises a couple of specific concerns with

respect to these awards. For the reasons that follow, we find no error on the part of the

trial court.

We turn first to the matter of attorney’s fees. A determination of reasonable

attorney’s fees is a discretionary matter, and “[t]here is no fixed mathematical rule in this

jurisdiction for determining reasonable fees.” Killingsworth v. Ted Russell Ford, Inc.,

104 S.W.3d 530, 534 (Tenn. Ct. App. 2002). On appeal, the sole issue raised by Air

Comfort about attorney’s fees is that the trial court, relative to a reduction of the fees

claimed by E Solutions, estimated that the amount of fees expended in claims against

Knestrick and Berkley were one third of the total fees claimed by E Solutions. We fail to

discern any error by the trial court. Again, there is no fixed mathematical rule in

determining fees, and we are of the opinion that the trial court acted appropriately in

attempting to ascertain the amount of fees E Solutions had expended relative to its suit

against Air Comfort, as opposed to those fees it incurred against Knestrick and Berkley.

Moreover, we observe that the trial court took appropriate account of E Solutions’ degree

of success when further reducing the amount of fees claimed by E Solutions. Ultimately,

by taking these reduction factors into account, the court determined that an award of

approximately $51,000.00 in attorney’s fees was appropriate despite an initial attorney’s

fee claim by E Solutions of over $90,000.00. We find no abuse of discretion in the

court’s determination that this fee was reasonable. Moreover, exercising our own

discretion, we are of the opinion that E Solutions is entitled to additional attorney’s fees

for pursuing its appeal against Air Comfort. The contract between these two parties

provided that Air Comfort would be liable for all collection expenses, including

reasonable attorney’s fees, incurred by E Solutions in attempting to collect any amount

due. E Solutions succeeded in this Court in collecting a higher amount for the equipment

it supplied, and we therefore remand the matter to the trial court to award E Solutions the

reasonable attorney’s fees it incurred against Air Comfort on appeal.

Regarding the prejudgment interest awarded to E Solutions, Air Comfort simply

maintains that the trial court erred in determining that October 16, 2018 was the operative

end date by which prejudgment interest should be calculated. We find no error in the

- 22 -

court’s conclusion. The final judgment in this case was not entered until October 16,

2018. The court did not err in allowing prejudgment interest up until that date.

Moreover, on remand the trial court should recalculate the award of prejudgment interest

to take into consideration the increase in the judgment in favor of E Solutions.

We finally turn our attention to the bond claim asserted by E Solutions. In doing

so, we initially note that pursuant to Tennessee Code Annotated section 12-4-201 et seq.,

the General Assembly has created provisions “to provide protection for furnishers of

labor and material on public works because these workmen are not protected by the

mechanics’ and materialmen’s lien laws.” Wal-Bd. Supply Co., Inc. v. Daniels, 629

S.W.2d 686, 687 (Tenn. Ct. App. 1981). These provisions “provide that no contract may

be let for a public project until the contractor executes a bond containing provisions

required by the statute and to the effect that he will pay for all labor and material used in

the project.” Id. As we have already noted, a payment bond was provided in this case in

connection with the Centenntial Sportsplex expansion project for Metro. Knestrick was

the principal under the bond, with Berkley serving as surety.

As a result of E Solutions’ failure to receive payment for the equipment it

provided for the Centennial Sportsplex expansion, E Solutions asserted a bond claim

against Knestrick and Berkley. At trial, the proof showed that $52,847.98 was owed to E

Solutions under unpaid invoices, and further, there was testimony from Charlene

Leonard, one of E Solutions’ owners, establishing that E Solutions had furnished a claim

under the payment bond. The specific notice of claim given by E Solutions was

introduced as an exhibit at trial.

Counsel for Knestrick and Berkley conceded at trial that the bond claim had been

timely made, and there does not appear to be any dispute that E Solutions was not paid

the outstanding $52,847.98 under its invoices. The trial court, however, rejected the bond

claim and held as follows:

The Court concludes that E Solutions is not entitled to judgment against

Knestrick and Berkley on the bond claim because of the Court’s ruling that

Knestrick is not liable to E Solutions and given that E Solutions’ bond

claim is derivative; it cannot be realized unless and until Air Comfort fails

to pay the judgment it owes to E Solutions. Alternatively, it is not clear

from the Complaint that E Solutions was pursuing a statutory bond claim.

As for the court’s lack of clarity about whether this case involved a statutory bond,

we observe that the payment bond, a copy of which was attached to E Solutions’

complaint, contains a provision expressly stating as follows:

When this Bond has been furnished to comply with a statutory or other

legal requirement in the location where the construction was to be

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performed, any provision in this Bond conflicting with said statutory or

legal requirement shall be deemed deleted herefrom and provisions

conforming to such statutory or other legal requirement shall be deemed

incorporated herein. When so furnished, the intent is that this Bond shall

be construed as a statutory bond and not as a common law bond.

As for the trial court’s specific conclusion that there can be no recovery on the

bond claim until Air Comfort fails to pay the judgment it owes to E Solutions, we

respectfully disagree. We are unaware of any such limiting requirement, and we observe

that the statute itself simply provides that “[a]ny laborer or furnisher of labor or material

to the contractor, or to any immediate or remote subcontractor under the contractor, may

bring an action on the bond, and have recovery in such laborer’s or furnisher’s own

name.” Tenn. Code Ann. § 12-4-204. Moreover, as E Solutions has illustrated in its

appellate brief, there are a number of practical problems in holding that a bond claim is

not available until a claimant has failed to collect from the party with whom it has

contracted. As E Solutions argued:

If a bond claim is not “ripe” until the claimant has failed to collect on a

judgment against that entity it contracted with, how can the bond claimant

also comply with the very short deadline for providing notice of the bond

claim as required by T.C.A. § 12-4-205? If a bond claim is not “ripe” until

the claimant has failed to collect on a judgment against that entity it

contracted with, how can the bond claimant also comply with the six month

statute of limitations for a bond claim set out in T.C.A. § 12-4-206?

As it is, there is no dispute that a timely bond claim was made. Further, the proof showed

that E Solutions was not paid $52,847.98 under its invoices. In light of the foregoing, we

reverse the trial court on this issue and remand for the entry of a judgment allowing

recovery on E Solutions’ bond claim including prejudgment interest and attorney’s fees.

CONCLUSION

For the reasons discussed above, we affirm in part, affirm in part as modified,

reverse in part, and remand the case for such further proceedings as are necessary and

consistent with this Opinion.

_________________________________

ARNOLD B. GOLDIN, JUDGE

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