Jan 23, 2019

WA Supreme Court Reaffirms Mike M. Johnson Strict Notice Requirement

Written by Kellen F. Patterson

The Washington Supreme Court recently ruled in NOVA Contracting, Inc. v. City of Olympia that WSDOT Standard Specification 1-4.05 makes no exception to the written notice requirements for claims for expectancy and consequential damages.

NOVA entered a contract with the City to replace a deteriorating culvert.  The Contract contained a “notice of protest” provision consisting of WSDOT Standard Specification 1.4-05.  That section required NOVA to “give a signed written notice of protest immediately if NOVA disagreed with anything required in a change order, another written order, or an oral order from the [City] Engineer, including any direction, instruction, interpretation or determination by the Engineer.”  426 P.3d at 686 (internal quotations omitted).  The City initially defeated NOVA’s breach of contract claim on summary judgment based on NOVA’s alleged failure to provide adequate notice under Section 1.04-5.  Id.  The Court of Appeals reversed in part, analyzing Mike M. Johnson, Inc. v. Spokane County, 150 Wn.2d 375, 78 P.3d 161 (2003) and concluding that lack of proper notice precluded claims for cost of work performed but did not preclude recovery of expectancy and consequential damages.  Id.  The Supreme Court reversed the trial court, applying Mike M. Johnson to claims for expectancy and consequential damages and finding NOVA’s claims entirely barred for failure to provide proper notice.  Id.

 The core dispute between NOVA and the City of Olympia arose from Contract provisions requiring NOVA to submit certain implementation plans and other “submittals” for City approval as a precondition to starting construction.  Id. at 686.  NOVA and the City engaged in an extensive back and forth regarding the adequacy of several such “submittals.”  Id. at 686-87.  Outstanding status of certain submittals notwithstanding, in order to permit adequate time for construction before a key DOE permit expired, the City issued a Notice to Proceed on August 11, 2014.  Id. at 687.  Following the NTP however, NOVA and the City continued to disagree about the adequacy of NOVA’s submittals, with NOVA pushing back on the City’s requested revisions and arguing that the City was using the revision process to cure defects in its own project design.  Id.  Throughout this disagreement, apparently on the belief that it could still complete the project by the October deadline, NOVA did not submit a formal protest.  Nor did NOVA file formal protest after the City rejected a revised round of project submittals.  Id.

On September 4, 2014, the City issued a notice of default to NOVA, demanding that it cure its defective performance in certain delineated respects within 15 days or risk termination of the contract.  Id.  In response, NOVA provided a third round of revised submittals and a revised schedule.  Id.  It did not however, provide the City with certain requested information regarding its pipe bursting subcontract, insisting instead that that issue had been adequately addressed.  Additionally, because the notice of default listed failure to mobilize as a delinquency, NOVA began moving equipment to the site although it did not yet have keys.  Id. at 688.  Instead, it cut the padlock on the fence and began implementing approved aspects of the traffic control plan.  Id.  In reaction, the City ordered NOVA to stop work immediately.  It also rejected NOVA’s third round of submittals.  Again, NOVA did not formally protest those rejections.  Id.

On September 9, 2014, NOVA did submit a formal protest to the City’s notice of default and stop work order.  On September 18, NOVA informed the City that it could no longer complete the project by the October deadline, offering to complete construction if the City payed for the associated delay.  The City declined, instead terminating the contract on September 24, citing NOVA’s failure to timely cure the deficiencies in the notice of default.  Id.  NOVA filed a formal written protest to the termination, arguing that the City denied it an opportunity to cure per the notice of default by issuing the stop work order in violation of the contract.  Id.  The City denied NOVA’s eventual claim for damages in its entirety.  Id.

In reply supporting its summary judgment motion for dismissal of NOVA’s claims at the trial court, the City argued that NOVA did not provide the written notice of protest required by Section 1.04-5 and therefore waived any claims related to the protested work.  Id. at 698.  The trial court denied the City’s motion on other grounds, but the court of appeals ruled in NOVA’s favor, holding that failure to comply with Section 1.4-05 waived only claims for the cost of the work, not expectancy or consequential damages.  Id.

The Supreme Court squarely rejected the Court of Appeals’ interpretation of Section 1.04-5 as terminating rights to recover costs related to work performed but not expectancy or consequential damages.  Instead, the Court interpreted the language in Section 1.04-5 as broadly precluding recovery for “every” and “all” claims arising from the protested work where proper notice is absent.  Id. at 690.  The court then went on to reject NOVA’s various arguments that specific compliance with Section 1.04-5 was not required with respect to each protestable event—i.e. the City’s various rejections of NOVA’s submittals—where the claim at issue was a generalized breach of the City’s obligation for good faith and fair dealing.  Id. at 691.  Instead, the court found that NOVA’s failure to submit any formal notice of protest in response to the City’s allegedly improper rejection of its submittals barred its claim.  Id.

The court’s decision represents an additional and continuing application of Washington’s uniquely strict notice requirements as firmly established in Mike M. Johnson.  NOVA ostensibly refrained from filing a formal notice of protest in response to the City’s various submittal rejections on the assumption that it could and would still complete the project by the October deadline.  The lesson of the case then, is that a contractor must immediately file a formal notice of protest consistent with Section 1.04-5 whenever it believes there is ground for such protest.  Washington courts will broadly rather than narrowly construe that Section to bar claims not first brought to an owner’s attention via formal notice.  Here, had NOVA filed the requisite notices, it might still have proceeded with construction while those claims were resolved.  By failing to submit formal notice, NOVA ceded its right to protest and recovery as to “any” and “all” claims arising from the protested work.