Please E-mail suggested additions, comments and/or corrections to Kent@MoreLaw.Com.

Help support the publication of case reports on MoreLaw

Date: 01-02-2018

Case Style:

Grady's Quality Excavating, Inc. Alliance Streetworks, Inc.

Case Number: CA-CV 16-0739

Judge: McMurdie

Court: Arizona Court of Appeals - Division One on appeal from the Superior Court in Yavapai County

Plaintiff's Attorney: Sharon Shively and Gaye Gould

Defendant's Attorney: Jason Kelley

Description: ¶1 Grady’s Quality Excavating, Inc. (“Grady’s Excavating”)
appeals from a superior court judgment entered in favor of Alliance
Streetworks, Inc. (“Alliance”) and American Specialty Insurance Company
on all counts, awarding Alliance attorney’s fees and costs, and denying
Grady’s Excavating’s Motion for New Trial and/or Additur.1
¶2 Grady’s Excavating is an Arizona roadway paving company
owned by Grady Hopson and his wife Cheryl Hopson, the company’s vice
president and chief financial officer. Ron Gardner owns Alliance, a public
works road construction company originating in California, which has held
an Arizona construction license since it moved to Arizona in 2011. While
new to the area, Gardner rented some of his equipment to Hopson and
discussed possible cooperation on projects.
1 The superior court awarded Alliance the sum of $15,000 on its
counterclaim for equipment rental charges, and denied Alliance’s claim for
repair costs on that equipment. Because Alliance did not appeal from these
rulings, Alliance’s counterclaim is not part of this appeal.
Decision of the Court
¶3 In August 2012, Yavapai County (“County”) opened its
“Verde Valley School Road shoulder widening and pavement
rehabilitation” project (“Project”) for bids from potential general
contractors. Because Grady’s Excavating did not have the bonding capacity
to bid on the Project, and Alliance had bonding capacity but no, or very few,
employees, Grady’s Excavating approached Alliance with an offer to
develop a bid and submit it under Alliance’s name.
¶4 After Alliance’s bid was the lowest submitted, a pre-award
meeting was scheduled, during which the County representatives met with
Gardner. The County required that “[a] minimum of 50% of the work must
be accomplished directly by the bidding contractor.” Gardner explained to
Aric Stewart, the County’s Project Engineer, Alliance would comply with
the 50% requirement by paying for more than 50% of the Project’s expenses,
and that Grady’s Excavating would perform all the labor because Alliance
had no employees. At trial, Stewart testified he contacted the County
Attorney regarding Alliance’s unusual form of fulfilling the County
requirement. The County determined that if Alliance would treat the listed
Grady’s Excavating’s employees as its own, the County would not reject
Alliance’s bid. Stewart was aware Alliance would have no real employees,
but Gardner assured the County he would be present on site daily and
during weekly meetings with Stewart.
¶5 On October 15, 2012, the County awarded the Project to
Alliance, executing a prime contract with Alliance for a total amount of
$879,893.69 (“Prime Contract”). On November 16, 2012, Grady’s Excavating
signed a subcontract with Alliance for $361,354.64, agreeing to “furnish all
labor, materials, (EXCLUDING ASPHALT) and equipment necessary and
perform supervision and labor required for the completion of the phase of
the project identified and itemized on Attached ‘Schedule A’”
(“Subcontract”).2 Schedule A stated Grady’s Excavating was responsible for
all “grading/paving/drainage” and “concrete headwalls” and specifically
excluded tasks to be performed by other subcontractors. Schedule A also
outlined the materials and subcontractors to be paid directly by Alliance.
The Subcontract further expressly provided: “Any and All Payrolls and
Expenses paid by Alliance Streetworks on behalf of Grady’s Excavating
Quality Excavating shall be deducted from the total of Grady’s Excavating
Quality Excavating sub-contract amount.” In Section 3, the Subcontract also
specified Alliance “may deduct from any amounts due to [Grady’s
2 Schedule A stated Alliance would purchase asphalt for the total
amount of $323,000.
Decision of the Court
Excavating] an amount sufficient to protect itself from loss on account of: .
. . (d) [f]ailure of [Grady’s Excavating] to make payments properly to its
subcontractors, suppliers and manufacturers, or for equipment, material or
¶6 Grady Hopson testified at trial he understood Alliance
needed to pay some employees through its payroll to satisfy the County
requirement, and that Grady’s Excavating would reimburse Alliance for
any payments to Grady’s Excavating’s employees. Gardner testified he
understood Alliance would cover certain materials, and Grady’s
Excavating would perform all labor on its part of the Project, with its
employees being paid through Alliance’s payroll. Cheryl Hopson, who
prepared the Subcontract, testified she understood Gardner to act as a
“straw general contractor,” or someone who manages or oversees the
Project, and that Grady’s Excavating would perform most of the Project.
She also understood the County required Alliance to “do payroll.” Cheryl
sent an email to Gardner dated November 14, 2012, which accompanied a
draft Subcontract and was sent two days before the Subcontract’s execution.
The emailed read: “Any payroll that is paid by Alliance will be charged
back to Grady’s Excavating contract amount also. If you want to set aside
$60,000 that is for payroll, we would be fine with that. This would reduce
Grady’s Excavating contract down to $301,354.64.” Cheryl also testified she
moved certain materials out of Grady’s Excavating scope of work into
Alliance’s to accommodate the County’s requirement for Alliance to
perform 50% of the Project. Cheryl also emailed Gardner a wage scale for
Grady’s Excavating’s employees, and repeatedly confirmed or clarified
which Grady’s Excavating’s employees would be added to Alliance’s
¶7 During the Project’s performance, Grady’s Excavating asked
Alliance to pay, on its behalf, its subcontractors, which Alliance did because
Gardner did not want to jeopardize Alliance’s performance bond. Grady’s
Excavating was not in a good financial position and paid many vendors in
¶8 For its performance, Grady’s Excavating submitted three pay
applications to Alliance. Cheryl testified Alliance never objected to any of
Grady’s Excavating’s pay applications, but Gardner testified he disputed
some. After the first application, Grady’s Excavating directly received
$36,370.64 from Alliance. In April 2013, the County lowered its payment to
Alliance by $46,091.06 from the original contract amount of $879,893.69,
adjusting it per the Prime Contract for actual quantities of work performed,
which also decreased Grady’s Excavating’s Subcontract amount.
Decision of the Court
¶9 After a five-day bench trial, the superior court concluded
Alliance had paid Grady’s Excavating for all work Grady’s Excavating
performed on the Project and correctly deducted from the Subcontract
balance all expenses it paid on Grady’s Excavating’s behalf under both the
Subcontract’s provisions and Arizona Revised Statutes (“A.R.S.”)
§ 34-221(I). The court granted judgment in favor of Alliance and awarded
Alliance $300,000 in attorney’s fees and $13,559.69 in taxable costs. Grady’s
Excavating timely appealed and we have jurisdiction pursuant to A.R.S.
sections 12-120.21(A)(1) and -2101(A)(1), (5).
¶10 Grady’s Excavating argues the superior court erred by (1)
finding that Alliance had paid Grady’s Excavating in full; (2) deciding the
Prompt Pay Act did not apply to the parties; (3) denying Grady’s
Excavating relief under the Little Miller Act; (4) awarding attorney’s fees to
Alliance; and (5) denying Grady’s Excavating’s Motion for New Trial
and/or Additur.
¶11 We review de novo any questions of law, including statutory
application and interpretation, interpretation of a contract, or
determination of whether contractual language is susceptible to multiple
interpretations to justify admissibility of extrinsic evidence. Kennedy v.
Lodge, 230 Ariz. 548, 549, ¶ 6 (2012); Calisi v. Unified Fin. Servs., LLC, 232
Ariz. 103, 106, ¶ 13 (App. 2013); Town of Marana v. Pima County, 230 Ariz.
142, 147, ¶ 21 (App. 2012). We will accept the superior court’s factual
findings, “unless they are clearly erroneous,” Calisi, 232 Ariz. at 106, ¶ 13,
which occurs only where no substantial evidence supports it. See Visco v.
Universal Refuse Removal Co., 11 Ariz. App. 73, 75 (1969). We view the
evidence in the light most favorable to sustaining the superior court’s
judgment, Great W. Bank v. LJC Dev., LLC, 238 Ariz. 470, 473, n.1 (App. 2015),
upholding it if it is correct for any reason. Citibank (Ariz.) v. Van Velzer, 194
Ariz. 358, 359, ¶ 5 (App. 1998). We do not reweigh conflicting evidence or
substitute our judgment for that of the superior court. Great W. Bank, 238
Ariz. at 478, ¶ 22. Only the trier of fact resolves conflicts in evidence.
Sandretto v. Payson Healthcare Mgmt., Inc., 234 Ariz. 351, 359, ¶ 24 (App.
A. Alliance Did Not Breach the Subcontract.
¶12 Grady’s Excavating contends Alliance should have paid
Grady’s Excavating additional sums under the Subcontract because
Alliance accepted Grady’s Excavating’s performance as satisfactory, and
Decision of the Court
Alliance did not prove it properly accounted for offset payments made on
behalf of Grady’s Excavating to employees and other parties or for
insurance costs. Grady’s Excavating further argues Alliance was required
to have its own employees.
¶13 “When interpreting an agreement, the court may always
consider the surrounding circumstances and ‘the context in which it was
made.’” Miller v. Hehlen, 209 Ariz. 462, 466, ¶ 12 (App. 2005) (quoting Smith
v. Melson, Inc., 135 Ariz. 119, 122 (1983)). “[P]arol evidence may be used to
explain [ambiguity in an agreement], but . . . it may not be used to change,
alter or vary the express terms in a written agreement.” Town of Marana, 230
Ariz. at 147, ¶ 21 (quoting Brand v. Elledge, 101 Ariz. 352, 358 (1966)). To
assess competing contractual interpretations, the court should consider
“the offered evidence and, if [it] finds that the contract language is
reasonably susceptible to the interpretation asserted by its proponent, the
[parol] evidence is admissible to determine the meaning intended by the
parties.” Id. (quoting Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148,
154 (1993)).
¶14 The Subcontract specified Grady’s Excavating would
“furnish all labor, materials, (EXCLUDING ASPHALT) and equipment
necessary” to grade/pave/drain the road and build its concrete headwalls
according to the Subcontract’s Schedule A. See Taylor, 175 Ariz. at 153 (a
court is obligated to enforce the agreement according to the parties’ intent
proven by credible evidence, although the parties used contractual
language of specific meaning distinct from the words’ ordinary meaning).
Schedule A specifically divided the Project between Alliance, Grady’s
Excavating, and other subcontractors, stating Grady’s Excavating would
perform “41% of [the] total contract” and Alliance’s share was “$386,642.57
plus payrolls.” The Subcontract further expressly deducted Alliance’s
payments of “Any and All Payrolls and Expenses” on behalf of Grady’s
Excavating from the total of Grady’s Excavating’s part of the Subcontract
amount. The Subcontract also authorized Alliance to deduct from Grady’s
Excavating’s Subcontract amount any payments it incurred to protect its
performance of the Project due to Grady’s Excavating’s failures to pay third
parties. Schedule A reflected the parties’ understanding that the County
required Alliance to have employees on payroll. The parties testified
Alliance was to be reimbursed for any payments to Grady’s Excavating’s
employees, and the course of performance reflected that understanding.
The parties communicated with each other about the deductions before and
during the Project.
Decision of the Court
¶15 The superior court determined Alliance did not have its own
internal payroll costs related to Grady’s Excavating’s scope of work and
that all labor expenses were to be paid by Grady’s Excavating.3 Because
substantial evidence in the record supports the superior court’s findings
that Grady’s Excavating’s employees did not become Alliance’s employees,
and because the evidence submitted did not contradict the terms of the
contract but assisted in interpreting it, we find no error in its ruling. See
Town of Marana, 230 Ariz. at 147, ¶ 21. We also agree with the superior
court’s interpretation of the Subcontract. See Calisi, 232 Ariz. at 106, ¶ 13 (we
review interpretation of a contract de novo). As such, Grady’s Excavating
failed to meet its burden of proof that Alliance breached the Subcontract,
and no burden shifted to Alliance to prove “offsets.”4
¶16 Grady’s Excavating argues Alliance improperly deducted
insurance costs of $16,346.48 because the payment covered Alliance’s own
insurance for the Project, and because Grady’s Excavating purchased its
own insurance. However, Gardner testified Grady’s Excavating failed to
produce an insurance certificate as required by Section 10 of the
Subcontract, forcing Alliance to pay commercial general liability insurance
on Grady’s Excavating’s behalf. The remainder of the insurance paid by
Alliance on Grady’s Excavating’s behalf was for workers’ compensation
and equipment coverage. The evidence supports the superior court’s
3 Grady’s Excavating argues Corey Baily was Alliance’s employee
when Alliance paid medical expenses in the amount of $2,556.60, a cost that
was improperly deducted from Grady’s Excavating’s Subcontract amount.
However, Corey Baily was listed in an email dated November 21, 2012,
from Cheryl Hopson to Gardner describing the wage scale of Grady’s
Excavating’s employees. The record supports the superior court’s finding
that Alliance appropriately subtracted this cost.
4 The terms “offset” or “setoff” are used interchangeably, and the
concept is defined as a “defendant’s counterdemand against the plaintiff,
arising out of a transaction independent of the plaintiff’s claim” or as a
“debtor’s right to reduce the amount of a debt by any sum the creditor owes
the debtor.” Setoff, Black’s Law Dictionary (10th ed. 2014). Offset is an
affirmative defense to be proven by the defendant. See Consol. Roofing &
Supply Co., Inc. v. Grimm, 140 Ariz. 452, 457 (App. 1984). Grady’s
Excavating’s argument based on the offset theory arises neither from a
separate transaction with Alliance, nor from a debt owed by Alliance to
Grady’s Excavating.
Decision of the Court
finding that Alliance was justified in deducting these expenses from
Grady’s Excavating’s Subcontract amount.5 See Sandretto, 234 Ariz. at 359,
¶ 24.
¶17 Grady’s Excavating also contends the superior court’s
findings of fact were insufficient in that each expense Alliance paid on
behalf of Grady’s Excavating was not individually described. Because a
court’s factual findings are to enable an appellate court to effectively
examine the basis for the superior court’s decision, only findings of the
ultimate facts are required for an effective review, without the need to
“bolster them by subsidiary findings on evidentiary matters upon which
such ultimate facts are based.” Gilliland v. Rodriquez, 77 Ariz. 163, 167 (1954);
Ruben M. v. ADES, 230 Ariz. 236, 241, ¶ 25 (App. 2012); In re U.S. Currency
in Amount of $26,980.00, 199 Ariz. 291, 294, ¶ 7 (App. 2000); see also Ariz. R.
Civ. P. 52(a). Here, the court satisfied the requirements of Rule 52, because
it provided “the essential and determinative facts on which the conclusion
was reached.” See Miller v. Bd. of Sup’rs of Pinal County, 175 Ariz. 296, 300
B. Arizona’s Prompt Pay Act Does Not Apply to a Public
Construction Contract.
¶18 Grady’s Excavating argues the superior court improperly
granted summary judgement in favor of Alliance regarding the application
of the Prompt Pay Act because “[n]othing in the Prompt Pay Act precludes
it from applying to a private subcontract agreement between a private
subcontractor and private general contractor who is working on a public
¶19 To support their position, Grady’s Excavating argues A.R.S.
§ 32-1129.02(B) governs this case. However, § 32-1129.06 expressly states:
“Sections 32-1129.01, 32-1129.02, 32-1129.04 and 32-1129.05 do not apply to
this state or political subdivisions of this state.” A.R.S. § 32-1129.06
(emphasis added); see Zumar Indus., Inc. v. Caymus Corp., 778 Ariz. Adv.
5 Grady’s Excavating argued Alliance did not pay on Grady’s
Excavating’s behalf other expenses totaling $6,743.39, which were spent
predominantly on hauling asphalt and on fuel. However, Cheryl Hopson
testified that the contract did not specifically allocate trucking and hauling
expenses to Alliance. The record supports the superior court’s finding
Alliance properly deducted these expenses.
Decision of the Court
Rep. 16, ¶¶ 11–12 (App. 2017) (absent from the definition of “owner,” a
concept around which the Prompt Pay Act is framed, is “any form of
government, government agency, or political subdivision”); see also State v.
Gomez, 212 Ariz. 55, 61, ¶ 35 (2006) (“In construing statutes, we apply their
plain language unless doing so would lead to an absurd, illegal, or
unconstitutional result.”). The definitions in § 32-1129 tie subcontractors to
the construction (prime) contract and its owner. See A.R.S. § 32-1129.
¶20 Because there is no dispute that (1) the owner of the contract
is Yavapai County; (2) Yavapai County is a political subdivision of this
state; and (3) Alliance and Grady’s Excavating entered the Subcontract for
the construction of the Verde Valley School Road, a public project, and
because the plain language of § 32-1129.06 exempts its application to public
projects, we affirm the superior court’s grant of summary judgment to
Alliance. See Ariz. R. Civ. P. 56(a); Zumar Indus., Inc., 778 Ariz. Adv. Rep. at
¶¶ 11–12.
C. Alliance Did Not Fail to Timely Pay under the Little Miller Act.
¶21 Grady’s Excavating further contends the superior court erred
by ruling Grady’s Excavating failed to prove Alliance violated A.R.S.
§ 34-221 because Alliance accepted all of Grady’s Excavating’s pay
applications. The court, however, found Alliance “lawfully deducted
payments from the subcontract for equipment, materials, vendors, and
subcontractors pursuant to A.R.S. § 34-221(I).” Because we have already
determined the superior court was correct in finding Alliance properly
deducted payments made on Grady’s Excavating’s behalf pursuant to the
Subcontract, we do not reach Grady’s Excavating’s argument based on
§ 34-221. See Van Velzer, 194 Ariz. at 359, ¶ 5 (“We will uphold the trial
court’s decision if it is correct for any reason.”).
D. Grady’s Excavating’s Motion for a New Trial Was Properly
¶22 Grady’s Excavating challenges the superior court’s denial of
its motion. Grady’s Excavating argues it proved Alliance breached its
Subcontract with Grady’s Excavating. We will reverse the superior court’s
denial of a motion for new trial and/or additur “only if it reflects a manifest
abuse of discretion given the record and circumstances of the case.” Styles
v. Ceranski, 185 Ariz. 448, 450 (App. 1996); see also Warne Investments, Ltd. v.
Higgins, 219 Ariz. 186, 194, ¶ 33 (App. 2008). Given the extensive record
supporting the superior court’s findings of fact, we find the court did not
abuse its discretion when it denied Grady’s Excavating’s motion.
Decision of the Court
E. Attorney’s Fees in Superior Court.
¶23 Grady’s Excavating contests the superior court award of
Alliance’s reasonable attorney’s fees and costs “under the Subcontract.”
Grady’s Excavating contends the indemnity provision of the Subcontract’s
Section 8 does not apply because it is not “an attorneys’ fees provision” and
Section 26 of the Subcontract does not apply because it authorizes Alliance
to recover attorney’s fees only “[i]f it shall be necessary for [Alliance] to
bring suit,” but not for a lawsuit’s defense.
¶24 Because the superior court stated it awarded fees and costs
“under the Subcontract,” but did not specify whether it found the basis for
its ruling in section 8, section 26, or A.R.S. § 12-341.01, we do not reach the
issues related to sections 8 and 26, but focus merely on the application of
§ 12-341.01.6 See Bennett Blum, M.D., Inc. v. Cowan, 235 Ariz. 204, 206, ¶ 5
(App. 2014) (attorney’s fees award will be affirmed “if it was appropriate
under any of the authorities relied upon by the proponent”); see also Skydive
Ariz., Inc. v. Hogue, 238 Ariz. 357, 369, ¶ 50 (App. 2015) (appellate court
upholds the superior court’s ruling “if it has ‘any reasonable basis’”). “We
review the grant or denial of attorney fees for an abuse of discretion.”
Motzer v. Escalante, 228 Ariz. 295, 296, ¶ 4 (App. 2011); see A.R.S. § 12-341.01
(the superior court has broad discretion in determining the amount of the
fee, but it “may not exceed the amount paid or agreed to be paid”). The
court abuses its discretion when “no evidence . . . supports [its] conclusion,
or the reasons given by the superior court [are] ‘clearly untenable, legally
incorrect, or amount to a denial of justice.’” In re Estate of Long, 229 Ariz.
458, 464, ¶ 22 (App. 2012).
¶25 Although Grady’s Excavating does not dispute it had a
contractual relationship with Alliance, it argues § 12-341.01 does not apply
6 Section 12-341.01(A) states:
In any contested action arising out of a contract, express or
implied, the court may award the successful party reasonable
attorney fees. If a written settlement offer is rejected and the
judgment finally obtained is equal to or more favorable to the
offeror than an offer made in writing to settle any contested
action arising out of a contract, the offeror is deemed to be the
successful party from the date of the offer and the court may
award the successful party reasonable attorney fees. This
section shall not be construed as altering, prohibiting or
restricting present or future contracts or statutes that may
provide for attorney fees.
Decision of the Court
because its application was expressly waived under the Prime Contract. We
reject Grady’s Excavating’s argument because Grady’s Excavating failed to
raise the argument in the superior court. See Harris v. Cochise Health Sys., 215
Ariz. 344, 349, ¶ 17 (App. 2007) (an argument not raised in the trial court is
waived on appeal). Grady’s Excavating, however, urges us to exercise our
discretion and consider the waived issue because we have the authority to
do so “where the facts are fully developed and the issues involve purely
questions of law.” City of Sierra Vista v. Sierra Vista Wards Sys. Voting Project,
229 Ariz. 519, 524, ¶ 20, n.8 (App. 2012). For a good reason, such as when
an issue is of statewide importance, we may and will entertain arguments
not raised in the superior court. City of Tucson v. Clear Channel Outdoor, Inc.,
209 Ariz. 544, 552, ¶ 33, n.9 (2005). Not only is an interpretation of a private
contract not an issue of such magnitude, but Grady’s Excavating
affirmatively and repeatedly sought fees under the Subcontract and
§ 12-341.01 throughout the litigation below. Having successfully persuaded
the court to apply § 12-341.01, albeit not in its favor, Grady’s Excavating
now cannot argue the court’s ruling was erroneous because the Prime
Contract prohibited the application of § 12-341.01. See In re Marriage of
Thorn, 235 Ariz. 216, 224, ¶ 35 (App. 2014); see also Schlecht v. Schiel, 76 Ariz.
214, 220 (1953) (“By the rule of invited error, one who deliberately leads the
court to take certain action may not upon appeal assign that action as
error.”), abrogated in part on other grounds as recognized in A Tumbling–T
Ranches v. Paloma Inv. Ltd. P’ship, 197 Ariz. 545, 552, ¶ 23 (App. 2000). In the
exercise of our discretion, we decline to disregard Grady’s Excavating’s
¶26 The court did not abuse its discretion by awarding attorney’s
fees and costs under § 12-341.01. We also affirm the amount of fees awarded
as reasonable evidence supports the award. See Long, 229 Ariz. at 464, ¶ 22.
F. Attorney’s Fees and Costs on Appeal.
¶27 Both parties request we award attorney’s fees and costs on
appeal pursuant to § 12-341.01, -342, and Arizona Rule of Civil Appellate
Procedure (“ARCAP”) 21. Section 12-341.01(A) provides a court with
discretion to award reasonable attorney’s fees to a prevailing party “[i]n
any contested action arising out of a contract.” Grady’s Excavating,
however, argues the Prime Contract’s attorney’s fees provision prevents
Alliance from recovering any attorney’s fees pursuant to § 12-341.01.
Although Grady’s Excavating waived this argument in the superior court,
see Harris, 215 Ariz. at 349, ¶ 17, such a waiver does not preclude our
consideration of the Prime Contract’s provision on appeal because it forms
Decision of the Court
a basis to a separate claim for attorney’s fees. See Bobrow v. Bobrow, 241 Ariz.
592, 598, ¶¶ 30–32 (App. 2017).
¶28 Assuming, without deciding, that § 12-341.01 applies, we
exercise our discretion and decline to award attorney’s fees on appeal to
either party. As the prevailing party, we award Alliance costs incurred on
appeal upon compliance with ARCAP 21.

Outcome: ¶29 For the forgoing reasons, we affirm the superior court’s
judgment in favor of Alliance, including its award of attorney’s fees and
costs. We award Alliance costs incurred on appeal upon compliance with

Plaintiff's Experts:

Defendant's Experts:


Find a Lawyer


Find a Case