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84 Lumber Company L.P. v. Gregory Mortimer Builders

United States District Court, W.D. Pennsylvania

February 23, 2017

84 LUMBER COMPANY, LP. Plaintiff/Counter-Defendant
v.
GREGORY MORTIMER BUILDERS, et al. Defendants/Counter-Plaintiffs

          MEMORANDUM OPINION ON PLAINTIFF'S MOTION FOR JUDGMENT PURSUANT TO FEDERAL RULE OF CIVTL PROCEDURE 52(C)

          Lisa Pupo Lenihan United States Magistrate Judge.

         I. SUMMATION

         For the reasons set forth below, the Court will grant Plaintiffs Motion for Judgment Pursuant to Federal Rule of Civil Procedure 52(c), ECF No. 234, as Defendants have failed - in their pleadings and evidentiary filings, and through evidence and argument presented during the limited-issue bench trial held on November 1st and 2nd, 2016 (the "Bench Trial")[1] - to meet the requisite evidentiary standards for aprima facie showing of the element of reasonable reliance as to any of their counterclaims sounding in fraud or negligent misrepresentation . In so holding, the Court observes that it has granted Defendants great leeway in continuing judicial consideration of these counterclaims, including, e.g. (a) conditionally accepting - in the interest of efficiency and economy, in hopes of advancing the parties' understanding and resolution of this protracted litigation, and for purposes of the limited-issue bench trial - all other elements of fraud or negligent misrepresentation despite current serious inadequacies in the evidentiary record and, indeed, evidence suggesting the unlikelihood of their ultimate establishment; and (b) considering claims and last-minute theories of tort liability despite significant questions of waiver and/or estoppel. At bottom, no matter how vigorously or inventively Defendants may rub the brass lamp of their residential-development relationship with Plaintiff, tort liability is not a genie which can be summoned by incanting even egregious breaches of contract; nor is it one whose scope of recovery may be attained without reasonable reliance, as it is just that reliance which must supply the causation element in a misrepresentation cause of action.

         II. RELEVANT FACTUAL AND PROCEDURAL HISTORY

         The extensively documented factual and legal history in this case arising from disputes between the parties with regard to (a) construction material purchases and (b) sub-contracted construction of housing in Defendants' multi-duplex residential developments - Timberlake Village (hereafter "Timberlake") and Cedar Creek - located near Deep Creek Lake, in Garrett County, Maryland was most recently summarized by this Court in its October 11, 2016 Memorandum Opinion on Contractual Damage Limitations (the "Damage Limitations Opinion"), ECF No. 214.

         The determination of Defendants' ability to make out the elements of their tort-based counterclaims was rendered more critical to the parties' accurate assessment of their litigation positions by this Court's October 11, 2016 Opinion. In the Damage Limitations Opinion, ECF No. 214, and subsequent January 3, 2017 Order, ECF No. 237, this Court concluded that the parties' contractual limitation of damage provision of the Subcontract Agreements' Paragraph 15, was an enforceable and independent provision, precluding "any consequential, indirect, exemplary or punitive damages of any type" as to those contract claims encompassed by the parties' clear language, i.e., damages "under this paragraph" and therefore those claims related to/flowing from "defects in workmanship or materials."[2] See ECF No. 214 at 1-2, ECF No. 237.[3]

         As explicated in previous Opinions, Defendants' Second Amended Counterclaim, ECF No. 44, theories of tort liability were:

(a) claims by each of the Defendants for (i) unspecified negligent misrepresentations (implicitly and by incorporation those misrepresentations made to Mortimer and underlying Count I), and (ii) fraud/intentional misrepresentation/concealment expressly with regard to Summer, 2009 representations to Mortimer regarding faulty construction issues and Plaintiffs intent to correct/purported correction of them (Counts II and III, respectively);[4] and
(b) claims by Mortimer for fraud in the inducement (Count I) by both (i) misrepresenting that improper CCA charges made in 2007 by a subsequently-fired Maryland manager would not recur[5] and that a Fall 2008 internal audit was conducted and showed no improper CCA charges, [6] and (ii) misrepresenting that subcontracted work would be performed by 84 Lumber's national "install program" construction experts/specialists.[7]

         And these claims remained as set forth above throughout subsequent pleadings, including, e.g., Defendants' October 18, 2016 Amended Pretrial Statement, ECF No. 224[8] and Amended Offer of Proof, ECF No. 222.[9]

         As with its detailing of the nature and basis of Defendants' tort claims, the Court has repeatedly recounted its concerns regarding apparent evidentiary insufficiencies as to the elements of these claims. Hence, e.g., the Court's direction that Defendants provide an Offer of Proof, and thereafter an Amended Offer of Proof. Of particular significance, the problematic nature of a showing of reasonable reliance was highlighted by the Court in its Damage Limitations Opinion footnotes on Defendants' factual representations. See supra nn. 4-8; see also ECF No. 214 at 21-22 (parsing, with reference to previous factually-detailed footnotes, Defendants' basis for alleged fraudulent inducement). Despite the continuing inadequacies of Defendants' Amended Offer of Proof, ECF No. 222, the Court permitted Defendants an opportunity to show reasonable reliance through the presentation of evidence and legal argument during the limited-issue Bench Trial.[10]

         III. APPLICABLE STANDARDS ON MOTION FOR JUDGMENT UNDER FED. R. CIV. P. 52(C) AND FOR PRIMA FACIE SHOWING ON TORT CLAIMS

         A. Rule 52(C)

         As Plaintiff correctly notes, Rule 52(c) provides that this Court may make dispositive findings of fact based on the burden of proof, evidence admitted and the Court's credibility determinations thereof. See Plaintiffs Memorandum in Support of Judgment, ECF No. 235 at 2-3. More particularly, "[i]f a party has been fully heard on an issue during a nonjury trial and the court finds against the party on that issue, the court may enter a judgment against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue." Id. (quoting Rule 52(c))

         B. Tort Claims

         As Defendants correctly set forth, the elements of fraud require that they show, by clear and convincing evidence, that: (1) Plaintiff made a false representation to them, (2) with knowledge of its falsity or reckless indifference to its truth, (3) and for the purpose of defrauding Defendants, (4) Defendants justifiably relied on the misrepresentation, and (5) they suffered compensable injury as a result. See Defendants' Amended Offer of Proof, ECF No. 222, at 2-3 (citing Hoffman v. Stamper, 385 Md. 1, 28, 867 A.2d 276, 292 (2005)). As they also correctly set forth, the elements of negligent misrepresentation require them to establish, by a preponderance of the evidence, that: (1) Plaintiff, owing a duty of care to Defendants, negligently asserted a false statement; (2) intending that it would be acted upon by Defendants; (3) with knowledge that Defendants would probably rely on the statement, which, if erroneous, would cause loss or injury; (4) Defendants justifiably took action in reliance on the statement; and (5) they suffered damage proximately caused by Plaintiffs negligence. See Defendants' Amended Offer of Proof, ECF No. 222, at 3 (citing Lloyd v. Gen. Motors Corp., 397 Md. 108, 135-36, 916 A.2d 257, 273 (2007); White v. Kennedy Krieger Inst., Inc., 221 Md.App. 601, 648, 110 A.3d 724, 751, cert, denied sub nom. White v. Kennedy Krieger Inst., 443 Md. 237, 116 A.3d 476 (2015)). See also Plaintiffs Memorandum in Support of Judgment, ECF No. 235, at 3 (Plaintiffs concurring statement that "[i]n the context of their negligent misrepresentation claim, Defendants must establish reasonable reliance by a preponderance of the evidence; ... in both fraud claims, Defendants must prove reasonable reliance by clear and convincing evidence") (emphasis in original) (citations omitted).

         IV. ANALYSIS

         As preface to its analysis of reasonable reliance on alleged misrepresentations, Plaintiff appropriately notes the relevance of both (1) Defendants' extensive business experience in the local construction industry - over two decades and approximately 200 primarily residential projects, with revenues in excess of $60 million, and millions of dollars in loans from various banks; and (2) Defendants' (a) own inquiry as to construction materials invoicing misbillings/improprieties, and (b) own inquiry and retention of third-party experts/consultants as to construction defects and repair. See ECF No. 235 at 5-7 (citing to specific portions of Mortimer's Bench Trial testimony). See also discussion supra, including nn. 4-8, and infra. Cf. ECF No. 235 at 10 (quoting Mortimer's testimony that "in construction, there's always issues"); id. (noting that "where the means of knowledge are open and at hand or furnished to the [relying party] . . . and no effort is made to prevent the [relying party] from using them, and especially where the [relying party] undertakes examination for himself, he will not be heard to say that he has been deceived to his injury by the misrepresentations of the [inducing party]") (quoting Piper v. Jenkins, 113 A.2d 919 (Md. 1955)). See further discussion, infra.

         A. Fraudulent or Negligent Misrepresentations as to Improper Billings under the Commercial Credit Agreement and Plaintiffs Audit

         As noted supra, Defendants' Second Amended Counterclaim basis for their tort claim(s) on billing misrepresentations are: misrepresenting that (a) improper Commercial Credit Agreement ("CCA") charges made in 2007 by a subsequently-fired Maryland manager were not recurring/would not recur and (b) a Fall 2008 internal audit was conducted and showed no improper CCA charges. See ECF No. 44. Defendants cannot maintain a tort action requiring reasonable reliance on either misrepresentation where none was justifiable and/or even evidenced.

         As noted supra, Defendants assert there were misbillings related to construction of Mortimer's Holy Cross residence both leading up to and immediately following the parties' October, 2007 settlement agreement, i.e., prior to entry into the April, 2008 Subcontract Agreement. Their evidence is that Mortimer and his spouse were (a) well-acquainted with the particulars of Plaintiff s CCA invoices over years of extensive business dealings, (b) regularly reviewing those invoices (governed by the parties' 1997 CCA) and identifying erroneous/disputed charges, (c) discussing invoices with Plaintiffs representative(s), and (d) having payments due adjusted.[11] In other words, Defendants were not relying on asserted "misrepresentations'Vpromises that there would be no further improper CCA charges, but were independently reviewing and seeking correction of those charges. This, of course, was not only Defendants' actual conduct, but the reasonable business conduct of a professional residential or commercial developer, particularly one of Mortimer's years and extent of experience. And Defendants' evidence is that they continued to review their construction materials bills prior to paying them during 2008 and 2009.[12] Defendants allege that an increased volume of invoice documents affected their ability to "catch mistakes" or alleged deliberate premature or misbillings.[13] But this simply does not turn a breach of contract under the CCA into liability for tortious misrepresentations on which Defendants reasonably relied. Defendants' evidence indicates that they did not (nor could they reasonably have) consider their decade-long CCA business relationship with Plaintiff to have - by contract terms or representations of honest conduct/intent - ever abrogated any further responsibility to engage in their customary billings review. To the contrary, the element of "reasonable reliance" encompasses the essence of its adjective.[14] The Court observes, but does not incorporate as necessary to its holdings, that the record indicates Defendants were making business decisions to continue their relationship with Plaintiff despite awareness of misbillings, and ongoing invoice negotiation and correction issues.[15]

         As to the store-wide "broad" audit requested by Mortimer in August, 2008 and conducted by Plaintiff (assertedly improperly), with its outcome reported to Mortimer: the record indicates that Defendants entered into another Subcontract Agreement on August 25, 2008. This apparently occurred in the interim between Mortimer's (a) independent ongoing awareness of CCA misbillings and monthly negotiations/adjustments, and being told - "during August" by Plaintiffs own employees at Defendants' construction site - of alleged improper materials charges (see supra, n. 5); and (b) obtaining, in a September, 2008 meeting, verbal representation of the result of Mortimer's requested "complete audit of the [entire] store".[16] The Court observes that the first Timberlake Subcontract Agreement was executed in April, 2008; construction began in Spring; and Defendants' evidence is of ongoing review and negotiation/credit issuance on invoices. See generally, discussion supra. It observes Defendants' testimony that the day after he received documentation related to alleged misbillings from Plaintiffs employees at his construction site, Mortimer drove to Pittsburgh and requested a comprehensive inventory and invoicing store-wide audit. See ECF No. 230 at 58-59. That Defendants apparently did not elect to await the results of inquiry arising from information being obtained "during August" and Plaintiffs audit - verbally or in writing - before proceeding to enter the Subcontract Agreement for Timberlake #12 affects the credibility of their assertion that subsequent October, 2008 Subcontract Agreements were entered into in material reliance on audit representations. Cf. ECF No. 230 at 151 (testimony that work on 3-4 of the projects was started before the subcontracts were signed); id. at 44-45 (discussing approximately month-early start to construction of some Fall 2008 project(s), e.g., Timberlake 11). The Court further notes that despite the audit's asserted materiality, Defendants never requested, obtained or reviewed any underlying audit result information/data, but received a verbal assurance at a restaurant meeting in September and, on October 1, 2008, a single-page letter.[17]

         The Court expressly noted the chronology of their evidence and the apparently-problematic matter of foreknowledge and subcontract execution to this claim, see supra (discussing prior Opinions). Yet Defendants have failed to provide any evidence in support of a contrary understanding of the time frame of: Defendants' ongoing invoice-review awareness of misbillings, Mortimer's August on-job-site conversations with Plaintiffs employees regarding misbillings, his contact with Plaintiffs representatives at other location(s), Plaintiffs audit, and Mortimer's meeting to receive oral audit representations in September. To the contrary, Defendants' Bench Trial testimony on this subject omitted evidence of a contrary relevant timing of events. See generally ECF No. 230-231.[18]

         As with their asserted justifiable/reasonable reliance on Plaintiffs alleged billing misrepresentations, Defendants simply cannot make out reasonable reliance on Plaintiffs alleged audit representations. Defendants (a) had performed, and continued to perform, customary commercial business review of invoices prior to payment, (b) were ongoingly aware of and negotiating correction of misbillings, (c) requested an audit but had not yet obtained/reviewed any audit information, and (d) continued and expanded their subcontract relationships with Plaintiff. The Court again notes that Defendants indicate their continuation and extension of Subcontractor Agreements was an informed and weighed business decision. For example, Plaintiffs participation was generally advantageous, or even necessary, for Defendants to obtain/ensure bank financing for their expanding construction projects. Moreover, Defendants testified that Plaintiffs involvement was essential to a bank's offering/approving Defendants' take-over of construction on the bank-foreclosed Cedar Creek project. See generally ECF No. 230-231 (Mortimer's Bench Trial testimony); ECF No. 230 at 35 (testimony that bank approved Cedar Creek loan package, when Defendants had numerous other projects, on basis of subcontracts with Plaintiff).

         In sum, Defendants have failed to make a sufficient showing - under the applicable standards for either fraudulent or negligent misrepresentation - that they justifiably relied on alleged misrepresentations regarding misbillings or audit results. See Plaintiffs Brief in Support, ECF No. 235, at 3, n. 4 (observing that "[a]mong the five elements of negligent misrepresentation is that a plaintiff must show she justifiably takes action in reliance on the statement") (quoting Dynacorp Ltd. v. AramtelLtd., 56 A.3d 631 (Md.App. 2012)); id. at n. 5 ("To recover on a claim for fraud, including fraud in the inducement, a plaintiff must show, inter alia that she not only relied upon the misrepresentation, but had a right to rely upon it in the full belief of its truth, and would not have done the thing from which the injury had resulted had not such misrepresentation been made.") (quoting Parker v. Columbia Bank, 604 A.2d 521 (Md.App. 1992)); id. at 10 ("[W]here the means of knowledge are open and at hand or furnished to the [relying party] . . . and no effort is made to prevent the [relying party] from using them, and especially where the [relying party] undertakes examination for himself, he will not be heard to say that he has been deceived to his injury by the misrepresentations of the [inducing party].") (quoting Piper v. Jenkins, 113 A.2d 919 (Md. 1955)).

         B. Fraudulent or Negligent Misrepresentations as to Use of Skilled Crews as Part of National Install Program; New Theories of Misrepresentations Based on Failure to Supervise the Job Site

         Defendants appear to now abandon their claim of misrepresentation premised until quite recently on performance of the contracted work by "friends and family" rather than subcontractors who were part of an 84 Lumber National Install Program. See Defendants' Memorandum of Law in Support of Opposition, ECF No. 238 (omitting any argument on this claim); id. at 6 (acknowledging Mortimer's testimony that he visited job site and recognized local subcontractors, and stating "Court noted that this testimony effectively foreclosed any claim Mortimer might have that he relied on representations that 84 Lumber would use a national team of installers"). This adjustment in their litigation position is prudent given the record.

         As this Court has previously observed in Opinions and Plaintiff largely correctly reiterates in the Memorandum in Support of its pending Motion: (1) with the exception of enumerated specifications as to decking (requiring "trained and experienced personnel"), the Subcontract Agreements contain no language specifying composition of the workforce; and (2) Mortimer was personally aware of subcontractors who would be and/or were working under the ...


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