Unpublished Disposition, 917 F.2d 567 (9th Cir. 1990)

MEMORANDUM^* 

This is an appeal from the district court's award of damages against a contractor in favor of a subcontractor and from the dismissal of the contractor's counterclaim. The contractor, Otlans, contends that the district court erred by (1) holding that Otlans breached its agreement with the subcontractor, Lagerquist; (2) denying Otlans' counterclaim; and (3) awarding Lagerquist attorneys' fees. We affirm. We also remand for the limited purpose of allowing the district court to award reasonable attorneys' fees to Lagerquist for this appeal.

DISCUSSION

The district court concluded that Otlans breached its subcontract with Lagerquist on the basis of (1) Otlans' "unreasonable job performance expectations" and (2) Otlans' consistently tardy underpayments of amounts billed by Lagerquist.

On the first ground, the subcontract between Otlans and Lagerquist expressly provides for the replacement of a subcontractor if the contractor believes the subcontractor has been too slow in completing his work, but only "after reasonable notice". On the day Lagerquist abandoned the job, Otlans threatened to fire Lagerquist unless he completed a "punch list" of thirteen items within four days. By Otlans' own admission, however, the "punch list" could not have been completed in the time allowed. Accordingly, the district court did not err in finding that Otlans was guilty of "unreasonable job performance expectations."

On the second ground, the evidence shows that Otlans was consistently tardy and deficient in paying Lagerquist. A contractor's failure to make payments due a subcontractor may constitute a substantial breach of the contract. See Macri v. United States ex rel. Maxwell, 353 F.2d 804, 810 (9th Cir. 1965) ("failure to make progress payments on a building contract may constitute a material breach"); see also United States ex rel. C.J.C., Inc. v. Western States Mechanical Contractors, Inc., 834 F.2d 1533, 1551 (10th Cir. 1987) (failure to make progress payments when due is a substantial breach of the contract). The district court did not err in its conclusion that Otlans breached its subcontract with Lagerquist. We also conclude there was no error in the computation of damages due to Lagerquist. There is evidence to support the district court's determination of damages in the amount of $12,827.49.

Because Otlans materially breached the contract, Lagerquist incurred no liability by abandoning the project. See American Hosp. Supply Corp. v. Hospital Prods. Ltd., 780 F.2d 589, 599 (7th Cir. 1985) (one party's material breach of contract entitles other party to walk away from contract without incurring any liability); Wells Benz, Inc. v. United States ex rel. Mercury Elec. Co., 333 F.2d 89, 92-93 (9th Cir. 1964) ("party may treat his own obligation at an end only if the other's breach is so gross that the very object of the contract is defeated"). The district court thus did not err by denying Otlans' claim for recovery of its alleged excess costs purportedly incurred as the result of Lagerquist's abandonment.

The contract here expressly states that " [i]n the event of litigation between the parties, reasonable attorney's fees shall be allowed to the prevailing party." Otlans nevertheless contends that because both parties were arguably to blame for the dispute, the district court abused its discretion in awarding fees to Lagerquist. This argument is meritless. Otlans' reliance on United States ex rel. A.V. DeBlasio Constr. Co. v. Mountain States Constr. Co., 588 F.2d 259 (9th Cir. 1978), is misplaced. We held in that case that it is not an abuse of discretion for a court to refuse to enforce a contract provision permitting an award of attorneys' fees to a prevailing party. Id. at 263. Mountain States does not hold, as Otlans suggests, that it is also an abuse of discretion to enforce a contract provision that not only permits but indeed mandates the recovery of attorneys' fees to a prevailing party.

Because we affirm the district court's judgment in its entirety, we conclude that Lagerquist, as the prevailing party, is entitled by the contract to an award of attorneys' fees on appeal. We elect to remand to the district court to allow it to determine a reasonable award of fees. See Jordan v. Multnomah County, 815 F.2d 1258, 1264 (9th Cir. 1987).

AFFIRMED; REMANDED for AWARD of FEES.