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Mega Concrete, Inc., et al. v. Michael Smith

March 23, 2011

MEGA CONCRETE, INC., ET AL.
v.
MICHAEL SMITH, ET AL.



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM

Plaintiffs Mega Concrete, Inc., Mega Sitework, LLC, and Capponi Enterprises, Inc., filed suit against two former employees, Michael Smith and Kimberly Lawson, as well as six individual defendants and six corporate defendants, who they allege conspired and collaborated with the employees to steal payments, resources, manpower, and business opportunities that rightfully belonged to the plaintiffs. The amended complaint brings claims for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c) and (d), and the Lanham Act, 15 U.S.C. § 1125(a), as well as state law claims of fraud, civil conspiracy, conversion, tortious interference with existing and prospective contractual relations, unjust enrichment, and aiding and abetting breach of fiduciary duty.

Four of the defendants, Mr. Smith, Paramount Concrete Construction, Inc., Jerry Frajdenberg, and U.S. Concrete, Inc., have answered the complaint, and Frajdenberg and U.S. Concrete have cross-claimed against Mr. Smith. Ms. Lawson has not responded to the complaint and default has been entered against her. Two defendants, Ira Goldberg and Beyond Concrete, Inc., were voluntarily dismissed from the case. Three groups of defendants, encompassing three corporate defendants and four individual defendants, have moved to dismiss all of the claims against them. The moving defendants are Shoemaker Construction Company, Roger Ball, Plumbline Construction, Inc., John Matter, Andrew Uhrik, Chesco Coring & Cutting, Inc., and Todd A. Cliggett.

The Court will grant the motions to dismiss all of the RICO and Lanham Act claims against the moving defendants for failure to state a claim. Per the agreement of the parties, the Court will limit this decision to the plaintiffs' federal claims. The Court will confer with the parties as to how they wish to proceed with respect to the remaining state law claims against the moving defendants.

I. Plaintiffs' Complaint*fn1

A. Facts

1. Mega Construction and Michael Smith The plaintiffs collectively conduct business under the trade name "Mega Construction" ("Mega"). Mega is a Pennsylvania construction company that typically works as a subcontractor on commercial projects throughout the Delaware Valley Region. Once Mega is awarded a particular project, the essential terms of the project are written into a subcontract, and the project is recorded in Mega's accounting system and assigned a "job number" so that Mega can track work performed, payments received or made, the amount of the original contract, change orders, and open balances. Mega also maintains records of which employees are assigned to which project ("manpower schedules") and of the location of its equipment on a particular date. Am. Compl. ¶¶ 22-36.

In August 2004, Mega hired Michael Smith as an estimator/project manager and in January 2006 he was promoted to Chief Operating Officer. In this role, Smith was responsible for preparing bids, negotiating contracts, overseeing projects, assigning manpower and equipment to various projects, purchasing and inventory of materials, and change order requests for any additional work performed. Smith acted as a liaison with the general contractors or Mega's own subcontractors. Am. Compl. ¶¶ 37-39.

Smith was also responsible for coordinating any changes to Mega's scope of work on a project, including estimating and negotiating the price to be charged for the change. "Change orders" are usually issued by the general contractor and document any modification to the scope of work, contract sum, or amount of time required to complete the project. Am. Compl. ¶¶ 40-42.

According to the complaint, in 2005, Smith began implementing a scheme to divert revenue and business opportunities from Mega. Smith recruited Kimberly Lawson, Smith's personal assistant and an accounting clerk/bookkeeper for Mega, to assist him in this scheme. Smith also used Paramount Concrete Construction, Inc., a company he secretly owned and operated while working at Mega, to carry out his scheme. Throughout the life of this alleged scheme, Smith recruited and coordinated the activities of the other defendants, and stole revenue, materials, equipment, and business opportunities from Mega. Smith's scheme was uncovered on or around September 17, 2008, at which time he was terminated by Mega. Am. Compl. ¶¶ 45-48, 69-70.

Although the allegations in the amended complaint cover numerous defendants and permutations of Smith's scheme, the Court will limit its discussion to the allegations involving the moving defendants.

2. Shoemaker Defendants and the Locust Towers Project Shoemaker Construction Company ("Shoemaker") is a Pennsylvania limited liability company that is owned and operated by Roger Ball. These two defendants are together referred to as the "Shoemaker defendants."

In early 2006, Shoemaker entered into an agreement with 1419 Tower L.P. to provide general contracting services in connection with the Locust Towers Project, which involved the rehabilitation and conversion of a former office building into a luxury condominium. On behalf of Mega, Smith submitted a bid to Shoemaker to perform the cast in place concrete work for the Locust Towers Project. Mega began performing the concrete work in November 2006, before the terms of the subcontract had been reduced to writing. Thereafter, on January 30, 2007, Mega and Shoemaker signed a subcontract dated March 24, 2006. The total value of the Locust Towers Project subcontract between Shoemaker and Mega was $196,330, subject to additions and deletions by change order. Am. Compl. ¶¶ 76-81; Ex. 1 to Am. Compl.*fn2

Although Mega's work on the Locust Towers Project did not begin until 2006, the plaintiffs assert that the scheme involving the Locust Towers Project began in early 2005 when Smith solicited Shoemaker, through Ball, to participate in his scheme to defraud the plaintiffs. Mega alleges that Smith, Lawson, Paramount, and Shoemaker conspired to "dupe" Mega into performing additional work on the Locust Towers Subcontract and retain the additional payments due to Mega for themselves. Am. Compl. ¶¶ 75, 82.

Specifically, Mega asserts that the Shoemaker defendants and Smith "devised a means to divert payments due to Mega Construction for work performed pursuant to the Locust Towers Subcontract through the manipulation of change orders." According to the complaint, in response to Shoemaker's requests for additional work, Mega submitted various proposed change orders. The plaintiffs allege that Shoemaker approved many of the change order requests, "but for a substantially lower dollar value than what was initially proposed in furtherance of the scheme to defraud" the plaintiffs. In total, Shoemaker approved six change orders for additional work in connection with the Locust Towers Subcontract totaling $89,467.00. Am. Compl. ¶¶ 83-85; Ex. 2.

The plaintiffs state that Smith, on behalf of Mega, submitted a proposal to perform additional patching and infill work at a price of $125 per hole, and that the owner of the building authorized this additional scope of work. Thereafter, in October 2006,*fn3 Mega performed patching work on 1,629 holes at the project. In July 2008, Mega discovered signed work orders related to the Locust Towers patching work that had never been submitted for payment and Mega immediately submitted a change order request for this additional work in the amount of $203,625.00. Shoemaker, however, issued a change order for the patching work for only $34,250 and never paid Mega for any of the patching work. The complaint alleges that the owner of the project had authorized and paid for the entire amount of the patching work, but that Smith, with the assistance of Lawson and Shoemaker, took the payment for the patching work as a "skim for themselves", Paramount, and "other defendants." Am. Compl. ¶¶ 85-68; Ex.3.

On May 10, 2007, Mega and Shoemaker entered into a second subcontract for "slab repair" work at the Locust Towers Project. The Slab Repair Subcontract was for $89,498, but over the course of the project, Shoemaker approved several change orders for additional work in connection with this subcontract, which caused Mega to perform a total of $164,592 of slab repair work. According to the complaint, although the owner of the project paid for all of the slab repair work, Mega was never paid for the additional work, because "Ball, Smith and Shoemaker agreed to revise the change orders issued to Mega for this completed work to reduce the amount to be paid to Mega... to only $89,498." The plaintiffs allege that Smith, Ball, Shoemaker and Paramount kept for themselves approximately $75,000 of the payments due to Mega for slab repair work. Am. Compl. ¶¶ 86-88; Exs. 4 & 5.

The plaintiffs assert that Mega performed $629,744 worth of work in connection with the Locust Towers Project, but were only paid $315,480.60 "because Defendants, through the manipulation of change orders and other construction documents, diverted at least $314,263.40." The plaintiffs believe that the owner of the Locust Towers Project paid Shoemaker the full amount of $629,744, but that Shoemaker, Smith, Lawson and Paramount took for themselves the difference between what the owner paid and what Mega received. Am. Compl. ¶¶ 89-91.

The RICO Case Statement lists various predicate acts of mail and wire fraud committed by the Shoemaker defendants, many of which repeat the allegations in the complaint and allege that various documents and payments related to the Locust Towers scheme were sent through the mail or wires.*fn4

3. Rite Aid Project and Plumbline Defendants Plumbline Construction, Inc., is a Pennsylvania corporation owned and controlled by Andrew Uhrik and John Matter. These three defendants are together referred to as the "Plumbline defendants."

Beginning in early 2008, Plumbline was acting as the general contractor on the Rite Aid Project, a renovation of a Rite Aid pharmacy in Philadelphia. The complaint alleges that the scheme involving the Rite Aid Project began in "early 2008" when Smith recruited the Plumbline defendants to participate. By email dated May 13, 2008, Smith submitted a price quote of $324,375 to Plumbline for subcontracting work on the Rite Aid Project. The email indicated that the price could be reduced by $50,675 if crushed stone could be substituted for a product known as cellular fill. In a second email to Plumbline dated July 9, 2008, Smith reduced the price of the bid on the Rite Aid project to $232,000. The plaintiff contends that there was no substitution of stone for cellular fill. The revised bid includes a handwritten note by Smith that says "No Footings" and provides a $38,000 credit. Am. Compl. ¶¶ 117-123; Ex. 14 &15.

Per Mega procedure, Smith then prepared and submitted a Project Information Sheet for the Rite Aid project. A Project Information Sheet is an internal Mega document that is supposed to include the entire scope of work and scheduled values for a particular project. The Project Information Sheet for the Rite Aid Project lists the value of the Rite Aid Project as $194,000, which reflects the prices listed in the Revised Bid, but omits the $38,000 for the CMU Wall footings. Am. Compl. ¶¶ 125-127; Ex. 16.

In August 2008, the first application for payment was submitted on behalf of Mega for payment on the Rite Aid project for the period from August 1, 2008, through August 31, 2008. Mega's payroll records, however, indicate that Mega began performing work on the Rite Aid project on July 7, 2008. According to the plaintiffs, Smith, on behalf of Paramount, submitted a payment application to Plumbline for work actually performed by Mega in July, specifically, $38,000 for the installation of footings at the Rite Aid Project. Paramount was eventually paid for the footings installation. Am. Compl. ¶¶ 128-132; Exs. 17-19.

On July 31, 2008, Smith submitted a change order request to Plumbline for additional work for $764. Smith never entered this change order request in Mega's records and the plaintiffs believe that "Defendants received payment for such additional work and kept it for themselves." Am. Compl. ¶¶ 138-139; Ex.21.

The first payment application included a $9,900 charge for a completed foundation drain. According to Mega, both Smith and Plumbline were aware that in fact the foundation drain was not complete at that time because in a fax dated September 19, 2008, from Plumbline to Mega, Matter outlines a time line for the project that states: "Foundation Drain Installed - 9/24/08." Mega believes that Smith submitted a fraudulent payment application for work that was not yet complete in order to "camouflage" the costs incurred by Mega on the Rite Aid Project, and that Smith was well aware that Mega's costs had far exceeded the amount requested in the payment application. Am. Compl. ¶¶ 133-136; Exs. 19 & 20.

On August 12, 2008, Smith submitted a proposal for additional work at the Rite Aid Project. The proposal involved removing and reinstalling granite curb for $19,260. By email dated August 14, 2008, Smith submitted a reduced proposal to Plumbline, stating that the curb work could be done for $15,750 if concrete were substituted for granite. In an email to Matter dated August 25, 2008, a "representative" of the owner of the Rite Aid Project questioned Plumbline about the $29,000 price Mega was charging for the curb work, stating that similar curb replacement generally costs much less.*fn5 Matter forwarded the email to Smith. Am. Compl. ¶¶ 145-147; Exs. 23-25.

On August 25, 2008, Smith responded by email to Plumbline, outlining the various costs associated with the curb work. The email states: "Total Cost - $29,402 (My Bid $15,750)." A handwritten note on the email states "No Footings." The plaintiffs believe that unspecified "defendants" kept the excess payments representing the difference between $29,000 ...


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