Opinion
FSTCV176032643S
06-25-2019
O&G INDUSTRIES, INC. v. AMERICAN HOME ASSURANCE COMPANY
UNPUBLISHED OPINION
OPINION
Hon. Kevin Tierney, Judge Trial Referee
This litigation is a dispute between the plaintiff, O&G Industries, Inc. (O&G) the supplier of construction material including concrete, and the defendant, American Home Assurance Company (American), the construction project’s surety. The high rise condominiums construction project at issue is located at 1011 Washington Boulevard, Stamford, Connecticut and is commonly known as the Park Square West Project. The bond documents formally describe the project as "The Trinity Stamford-PSW Condominium-Phase Four Unit, 1011 Washington Boulevard, Stamford, CT."
The operative complaint is the First Amended Complaint dated July 25, 2017. (# 101.00.) It is a two-count complaint with each count claiming damages in the same amount of $484,919.30. The First Count seeks that amount of damages based upon a bond substituted for the discharge of a $484,919.30 mechanic’s lien issued by the plaintiff, O&G, on February 28, 2017. Ex. 52, Ex. 53. The defendant, American, supplied that bond on March 6, 2017, Bond No. 930941 in the amount of $533,411.23. Ex. 57. The Second Count is a suit against the defendant, American, by the plaintiff, O&G, on a Payment Bond issued by American as surety to the project contractor, The Morganti Group, Inc. Ex. 1. The plaintiff claims damages on the Second Count in the amount of $484,919.30 plus interest, costs and attorney fees. The operative answer is the November 20, 2017 Amended Answer and Special Defenses (# 109.00). Nine Special Defenses have been asserted by American in this eleven-page Amended Answer and Special Defenses (# 109.00). The pleadings were closed by a November 21, 2017 Reply that denied each of the nine Special Defenses (# 110.00). The matter was tried to court over five days. Post-Trial briefs and reply briefs were filed in accordance with the court’s order. The court makes the following findings of facts and legal conclusions.
A Payment Bond and a Performance Bond were issued each in the amount of $53,690,000 by American naming the project contractor as The Morganti Group, Inc. Ex. 1. On January 31, 2016 The Morganti Group, Inc. entered into a written Subcontract Agreement with Concrete Superstructures, Inc. (CSS) of Bloomfield, CT. Ex. 2. The subcontract price was $3,710,000. CSS was the entity hired by The Morganti Group, Inc., the project contractor to deliver and pour the concrete at the construction site. The plaintiff, O&G, supplied the concrete and other related materials called for in the above mentioned subcontract to CSS and delivered them to the site. The plaintiff, O&G, claims, that they were not paid and are owed $484,919.30. O&G was not paid in full by either CSS and/or The Morganti Group, Inc. O&G is now making a claim against American by reason of its issuance of the two bonds, the performance bond and the bond in substitution for the mechanic’s lien.
The court first turns to the requirements for submission of a claim on the Payment Bond. Ex. 1. The Payment Bond contains an eight-item "Claim" requirement in Section 16.1 that requires: "A written statement by the Claimant including at a minimum": The plaintiff, O&G, by Joseph B. Schwartz, its attorney of record, furnished such a written Claim to American and The Morganti Group, Inc. by letter dated February 2, 2017. Ex. 51. The plaintiff claims that each of the eight requirements of Section 16.1 of the Payment Bond have been met by this simple two-page letter and attachments. Ex. 51.
The court finds that Exhibit 51 contains the required information that satisfy items 1, 2, 4, 5, 6, 7, and 8 of Section 16.1 of the Payment Bond. In dispute is whether item 3 of Section 16.1 has been satisfied. Section 16.1.3 states: "a copy of the agreement or purchase order pursuant to which labor, materials or equipment was furnished for use in the performance of the Construction Contract." During the trial no copy of a single separate signed agreement between CSS and O&G for concrete supplies and related products was furnished to the court. Each of the Orders and delivery invoices supporting the claim of $484,919.30 was placed before this court in the form of signed tickets and invoices on the business letterhead of O&G. Ex. 67. Each of those documents in Exhibit 67 was prepared on a preprinted form with the heading, O&G Industries, Inc. Each document contains the name of Concrete Super Structures, Inc. Most but not all of the documents in Exhibit 67 are either signed or initialed by an agent or employee of CSS. All of the documents reference the project either by name or address or both and all are dated.
The Payment Bond does not require that the agreement or contract be fully and completely executed by all required parties, be executed by the subcontractor and that subcontractor’s supplier, be in writing, or be satisfied by only a single document. Item # 3 in Section 16.1.3 contains no such requirements. Ex. 1, paragraph 16.1. Furthermore, there are no terms in the Payment Bond that exclude oral contracts with material suppliers from being considered as a Claim under the Payment Bond. American is the drafter of the Payment Bond. There is no evidence that O&G had any involvement with the drafting of the terms of the Payment Bond. In addition, the definition of "Claimant" under the Payment Bond includes "entity that has rightfully asserted a claim under the applicable mechanics lien." Ex. 1, Section 16.2. O&G has submitted such a mechanic’s lien and this litigation involves the enforcement of a bond substituted by American for O&G’s mechanic’s lien.
Three other documents as requested by O&G early in this construction process were offered into evidence; (1) an April 4, 2016 Redi-Mix Price Quotation addressed to CSS for the Park Square West Project itemizing the products for sale, their prices, extra cost items, and other payment and billing credit information. Ex. 5, first page; (2) a May 10, 2016 Materials Price Quotation issued by O&G to CSS with similar billing and credit terms relating to the sale of one product called "Aggregate." Ex. 5, second page; and (3) a one-page Credit Agreement executed by CSS on April 19, 2016 containing detail billing and credit conditions of CSS’s agreement with O&G. Ex. 6. This court finds that in the event that this $484,919.30 claim is not supported by a fully executed contract containing all the terms of the relationship between O&G and CSS and not executed fully by both CSS and O&G, the documents contained in Exhibits 5, 6 and 67 satisfy Item 3 in Section 16.1.3 of the Payment Bond marked as Exhibit 1 before this court.
The court finds that the plaintiff, O&G has satisfied all of the conditions of the Payment Bond, is a claimant under the Payment Bond, made a demand for $484,919.30, and American did not make any payments to O&G on its Payment Bond claim of $484,919.30.
The court now turns to consideration of the plaintiff’s mechanic’s lien claim. On February 28, 2017 O&G filed a Certification of Mechanics Lien that was recorded in the Stamford Land Records at Book 11686 at page 44-47. It was subscribed and sworn to by O&G. Ex. 53. The Certificate of Mechanics Lien stated that O&G "commenced performing, supplying and furnishing labor, materials and services on September 3, 2016 and ceased furnishing such materials and rendering such services on December 2, 2016." The total amount of the mechanic’s lien is $484,919.30. The Certificate of Mechanics Lien is dated February 24, 2017, and served on February 28, 2017, both of which dates are within ninety days from the last day of furnishing materials and/or rendering such services. The legal description of the real property of 1011 Washington Boulevard, Stamford, Connecticut was attached to the Certificate of Mechanics Lien as SCHEDULE A- PROPERTY DESCRIPTION. Ex. 53. The property owner, the project contractor and CSS were all named in the Certification of Mechanics Lien and all three were served. Ex. 55. A Notice of Intent to File Mechanics’ Lien containing the same information along with the real property description was offered at trial. Ex. 52. A return of service dated February 28, 2017 for the Certificate of Mechanics Lien and Notice of Intent to File Mechanics’ Lien was offered at trial. Ex. 55.
On March 6, 2017 The Morganti Group, Inc. as general contractor and principal and American as surety entered into a Bond for Discharge Mechanics Lien, Bond No. 930941. A five-page document headed Bond for Discharge of Mechanics Lien was offered at trial. Ex. 57. This Bond for Discharge was directed to the above $484,919.30 Mechanics Lien filed by O&G. Pursuant to the bond, American is obligated to "pay any and all judgments which may be rendered against the said property in favor of the aforesaid lienor, his successors or assigns, in any action or proceedings to enforce said lien ..." O&G is the lienor in that March 6, 2017 bond. American is the surety. The Morganti Group, Inc. as the General Contractor is the principal. Ex. 57, page 1.
The Bond was substituted on March 6, 2017. Ex. 57. This lawsuit was filed within one year. Gen. Stat. § 49-37(a). The Return of Service in this litigation is dated July 3, 2017 as filed with the Clerk of the Superior Court. This court finds the plaintiff has complied with the requirements of Gen. Stat. § § 49-33, 49-34, 49-35, and 49-37.
The plaintiff’s Request for Relief as to both courts states:
"WHEREFORE, the plaintiff, O&G Industries, Inc. respectfully requests that this Court enter judgment in its favor, and award O&G:
1. Compensatory damages as to all counts;
2. Interest pursuant to Conn. Gen. Stat. § 37-3a as to all counts;
3. Costs as to all counts;
4. Damages including interest, costs and attorneys fees allowable under Conn. Gen. Stat. § 52-249(a) and the Payment Bond; and
5. Such other further relief as may pertain in law or equity."
The plaintiff is seeking interest pursuant to Gen. Stat. § 37-3a. The amount of interest set forth in that statute is: "at the rate of ten per cent a year, and no more, ..." No specific numerical percentage of interest was sought in the plaintiff’s complaint. No such delineated interest rate of less than ten per cent is set forth in Gen. Stat. § 37-3a. Interest awarded under Gen. Stat. § 37-3a is discretionary with the court. Sears Roebuck and Company v. Board of Tax Review of the Town of West Hartford, 241 Conn. 749, 762 (1997). It is the court that sets the interest rate not to exceed ten percent. "We conclude instead that, consistent with its plain language, § 37-3a establishes a maximum rate above which a trial court should not venture in the absence of specific legislative direction." Id., 765-66. The award of interest, if any, must meet the requirements of case law. Sosin v. Sosin, 300 Conn. 205, 229-30 (2011); DiLieto v. County Obstetrics and Gynecology Corp, P.C., 310 Conn. 38, 52 (2013).
The plaintiff is claiming an award of attorneys fees pursuant to the language of the Payment Bond. Ex. 1. Paragraph 7.3 of the Payment Bond states: "... the Surety shall indemnify the Claimant for the reasonable attorneys fees the Claimant incurs thereafter to recover any sums found to be due and owing to the Claimant." Ex. 51, third page, paragraph 7.3; Ex. 1, paragraph 7.3.
In addition the plaintiff is seeking attorneys fees pursuant to Gen. Stat. § 52-249: "A plaintiff who prevails in any action upon a bond which has been substituted for a mechanic’s lien shall be allowed costs and a reasonable attorneys fees." Gen. Stat. § 52-249a. This statute was passed by the Connecticut General Assembly to be effective on October 1, 2007 based upon caselaw interpreting the previous statute Gen. Stat. § 52-249. See 2007, P.A. 07-120, § 1. This court finds that all the events set forth in this litigation occurred after the effective date of P.A. 07-120, § 1.
The court heard no evidence as to the appropriate rate of interest, if any, the effect of Gen. Stat. § 37-3a, the legal effect of the language of the Payment Bond as to interest and attorneys fees, or the legal effect of Gen. Stat. § 52-249a. No opportunity was furnished to either of the litigants to discuss the subject of whether attorneys fees should be awarded and, if so, the amount thereof. The parties were not heard as to their respective positions as to whether interest could be awarded, the commencement date of interest, the rate of interest, and the calculation of interest. This court finds that, in the event that a judgment enters in favor of the plaintiff, a separate evidentiary hearing should be held on all issues of attorneys fees. The parties at trial agreed that separate post-trial hearing on attorneys fees, if a judgment for the plaintiff was entered, would have to be scheduled by this court. P.B. § 11-21.
On February 15, 2019 the defendant, American, filed Defendant’s Post-Trial Brief (# 123.00). The defendant conceded as follows: "It is undisputed that O&G provided the concrete and materials to the Project as claimed and that they were free from defect and used in the construction of the Project. It is further undisputed that O&G was not paid by Concrete Superstructures, Inc. (‘CSS’), the subcontractor on that Project, who purchased that concrete. And it is undisputed that O&G made a timely claim against the payment bond and perfected its lien rights in a timely matter." (# 123.00, page 1.)
The plaintiff is required to establish that probable cause exists to sustain the validity of the mechanics lien. The defendant has the burden of proof by clear and convincing evidence to sustain its claim that the Bond on Substitution for a mechanic’s lien is invalid or excessive. Gen. Stat. § 49-37(b)(5); Labbe v. Remmco, Inc., Superior Court, judicial district of Waterbury, Docket Number 105609 (May 11, 1993, Barnett, J.).
This court finds that the plaintiff has satisfied its burden of proof concerning both the First Count, the claim on the bond substituted for the mechanics lien for $484,919.30, as well on the Second Count, the claim on the Performance Bond in the same amount of $484,919.30.
The defendant American, despite pleading nine Special Defenses, has briefed three claims in its Post-Trial Brief (# 123.00, at page 2) that O&G’s claims under both bonds must fail: (1) The general contractor, The Morganti Group, Inc., "paid CSS for the concrete delivered by O&G, and, as the indemnitor of American Home under the bond it issued, would be forced to pay twice for the same concrete should this Court rule in favor of O&G." The court notes in response to that claim that The Morganti Group, Inc. is not a party in this litigation nor has the putative indemnification effect been pleaded by either party. This issue was raised in the Sixth Special Defense. (2) The second claim is that O&G "failed to submit to American a copy of the contract it had with CSS, and failed to satisfy an express condition precedent to a valid claim under the payment bond in question." "Similarly, by seeking payment under the mechanics lien bond before it obtained judgment against Morganti, O&G’s claim is fatally premature." A similar claim is made in the Eighth Special Defense. (3) The third claim is "the Connecticut Supreme Court has ruled unequivocally ‘that in a contract of suretyship, diligence and utmost good faith are required to be observed by a party claiming against a surety." American claims that "O&G’s actions in providing the concrete and materials to CSS for which it now claims payment were utterly and completely lacking in the requisite diligence and good faith." This third claim requires the court to examine the first five Special Defenses, which outline those equitable claims. (# 109.00.) The court will now discuss each of the Nine Special Defenses. (# 109.00.)
The first five Special Defenses in the Amended Answer and Special Defenses dated November 20, 2017 (# 109.00) all allege equitable defenses. First: "O&G’s unreasonable and reckless conduct"; Second: "O&G’s reckless, unfair, and unreasonable conduct"; Third: "O&G’s reckless, unfair, and unreasonable conduct"; Fourth: "O&G’s reckless, unfair, and unreasonable conduct"; and Fifth: "O&G’s claims are barred by the doctrine of laches." Caselaw in Connecticut has held generally that equitable defenses are not applicable to actions at law on the theory that equitable doctrines are "largely governed by the circumstances, and is not to be imputed to one who has brought an action at law within the statutory period." John H. Kolb & Sons, Inc. v. G and L Excavating, Inc., 76 Conn.App. 599, 613 (2003); Giordano v. Giordano, 39 Conn.App. 183, 214 (1995).
In the First Count the plaintiff sues on a bond substituted for a mechanics lien. A suit on a mechanics lien is a statutory proceeding. Under Gen. Stat. § 49-37, upon the substitution of the bond for the mechanics lien a later suit to enforce the bond posted for the mechanics lien is an action at law. Neither action existed at common law. Both enforcing a mechanics lien and a lawsuit on the substituted bond are statutory proceedings. Sarracco Mechanical Services, Inc. v. Bank of Scotland, Superior Court, judicial district of Waterbury, Docket Number X10 UWY CV08-5010233S (Scholl, J., March 4, 2009).
The Second Count is a claim against a Payment Bond. The Payment Bond was executed as a contract between the contractor, The Morganti Group, Inc., America, as surety and defendant in this litigation, and the owner of the real property, Stamford Phase 4 JV, LLC. Ex. 1. A suit on a claim against a Payment Bond filed in support of a construction contract is an action at law. Dicin Electric Company, Inc. v. O&G Industries, Inc., Superior Court, judicial district of Hartford, Docket Number HHD CV16-6070813S (May 25, 2017, Elgo, J.) .
The Supreme Court in 1973 held; "It is also well settled that equitable defenses or claims may be raised in an action at law." Kerin v. Udolf, 165 Conn. 264, 269 (1973). That case is cited by a number of courts in Connecticut for the proposition that all equitable defenses are valid in actions at law. Kerin v. Udolf involved a nonpayment of a note payable in monthly installments. There is some indication that the note may have been secured by a mortgage. The so called Special Defense "alleged payment of the installment by check duly deposited in the mail." Id., 265. Although the Kerin case did not involve the foreclosure, it was well understood by the Kerin court that the foreclosure of a mortgage note is an equitable proceeding. In addition, the Kerin Supreme Court determined that the allegation of payment was a Special Defense invoking the court’s application of equitable doctrines. Furthermore, both the trial court and the Supreme Court discussed the fact that the check at issue was duly deposited in the mail. This court has difficulty accepting the payment special defense as invoking equitable principles in Kerin. This court concludes that the underlying facts of the Kerin decision caution courts to limit the applicable referenced sentence that "it is well settled that equitable defenses are claims that may be raised in an action at law."
The 1908 case cited in Kerin for that proposition is equally suspect. A later Supreme Court decision seems to stand for the proposition that equitable defenses are applicable essentially in causes of action where the plaintiff seeks some equitable relief. Thompson v. Orcutt, 257 Conn. 301, 310 (2001); Weiss v. Smulders, 313 Conn. 227, 265, fn. 19 (2014). In a recent trial court decision, this court followed the above holdings. Weinshel, Wynnick & Associates, LLC v. Bongiorno et al., Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV12-6016909 S (February 28, 2018, Tierney, JTR). It is noted in the case before this court that the sole remedy being sought by the plaintiff is monetary damages together with a statutory and contractual claim for attorneys fees and post and prejudgment interest. The plaintiff is not seeking any form of equitable relief in either of the two counts.
As to those first five Special Defenses, this court finds the plaintiff has not sought any equitable relief. Each of the two counts of the plaintiff’s claim is seeking monetary damages as well as statutory and bond permitted attorneys fees and interest and no equitable remedies whatsoever. The court finds that the Special Defenses First through Fifth are seeking equitable remedies and are not applicable to this action at law.
The first five Special Defenses allege the plaintiff’s reckless conduct. The First Special Defense alleges that the reckless conduct bars the plaintiff from proceeding against American. The Second Special Defense alleges that reckless conduct as unclean hands. The Third Special Defense alleges that reckless conduct as a failure to mitigate damages. The Fourth Special Defense alleges that reckless conduct as estoppel. The Fifth Special Defense alleges that reckless conduct amounts to the defense of laches.
The defendant cites two Connecticut cases for the proposition that the reckless conduct of a claimant is a defense to that claimant’s claim against a surety bond. Both cases are over 100 years old. The earliest case is Aetna National Bank v. Hollister, 55 Conn. 188, 212 (1886). The phrase quoted in the defendant’s brief regarding "diligence and the utmost good faith are required to be observed by a party claiming against a surety" was found without any supporting legal source in the Hollister decision. The recitation of the facts showing the claimant’s so called bad faith activities did not persuade the Supreme Court, which found: "Nevertheless in view of the strong provisions of the bond, we do not think the above facts constitute a legal defense. It does not appear that the defendant was misled to his prejudice by anything done or omitted on the part of the plaintiff, and the necessary elements of an estoppel against the maintenance of the suit are wanting." Id., 213. In addition, the Hollister court did not attempt to explain what factors applied in a determination of "utmost good faith."
That same phrase appears in the second case cited by the defendant, Wolthausen v. Trimpet, 93 Conn. 260, 269 (1919), citing directly from Aetna National Bank v. Hollister. Again no supporting legal source for the phrase appears in Wolthousen v. Trimpet . Again the ultimate acts of the plaintiff were analyzed by the Supreme Court and it found: "Such action is not negligence under the circumstances." It therefore appears no further standards as to what "utmost good faith" is were outlined in these two cases.
In 1983 the Supreme Court visited the phrase "utmost good faith" and appears to have equated it with "fair dealing." PaceIli Brothers Transportation, Inc. v. Pacelli, 189 Conn. 401, 407 (1983). It is therefore incumbent upon this court to establish what standards must be shown by the defendant to defeat the plaintiff’s claim upon the bond based on the plaintiff’s omissions or commissions. This court offers the following for consideration.
Common-law recklessness in a civil context is well defined.
Recklessness is a state of consciousness with reference to the consequences of one’s acts ... It is more than negligence, more than gross negligence ... The state of mind amounting to recklessness may be inferred from conduct. But, in order to infer it, there must be something more than a failure to exercise a reasonable degree of watchfulness to avoid danger to others or to take reasonable precautions to avoid injury to them ... It is such conduct as indicates a reckless disregard of the just rights or safety of others or of the consequences of the action ... reckless conduct tends to take on the aspect of highly unreasonable conduct, involving an extreme departure from ordinary care, in a situation where a high degree of danger is apparent. (Citations omitted; internal quotation marks omitted.) Craig v. Driscoll, 262 Conn. 312, 342-43, 831 A.2d 1003 (2003). "[S]uch aggravated negligence must be more than mere mistake resulting from inexperience, excitement or confusion, and more than mere thoughtlessness or inadvertence, or simple inattention ..." (Citation omitted, internal quotation marks omitted.)Doe v. Hartford Roman Catholic Diocesan Corporation, 317 Conn. 357, 383, 119 A.3d 462 (2015).
Connecticut has adopted a civil cause of action for the breach of the implied covenant of good faith and fair dealing. Magnan v. Anaconda Industries, Inc., 193 Conn. 558, 566 (1984). "It is axiomatic that the ... duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship ... In other words, every contract carries an implied duty requiring that neither party do anything that would injure the right of the other to receive the benefits of the agreement ... The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party’s discretionary application or interpretation of a contract term." Geysen v. Securitas Security Services USA, Inc., 322 Conn. 385, 399 (2016). The plaintiff to make out a claim for breach of covenant of good faith and fair dealing must prove the existence of a contract. Landry v. Spitz, 102 Conn.App. 34, 46 (2007). In addition, the plaintiff, proving a breach of covenant of good faith and fair dealing, must show bad faith on behalf of the defendant. Essentially, this is what the defendant is claiming in the first five Special Defenses alleging "reckless," "unfair" and "unreasonable conduct." "When one party performs the contract in a manner that is unfaithful to the purpose of the contract and the justified expectations of the other party are thus denied, there is a breach of the covenant of good faith and fair dealing, and hence, a breach of contract, for which damages may be recovered ..." Landry v. Spitz, 102 Conn.App. 44.
The obligation on the proponent of the bad faith allegations must meet the following well settled standards: "To constitute a breach of the implied covenant of good faith and fair dealing, the acts by which a defendant allegedly impedes the plaintiff’s right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith ... Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive ... Bad faith means more than mere negligence; it involves a dishonest purpose." De La Concha of Hartford, Inc. v. Aetna Life Insurance Company, 269 Conn. 424, 433 (2004); Geysen v. Securitas Security Services USA, Inc., supra, 322 Conn. 399-400.
The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue ... Unless the plaintiff’s conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply.Bauer v. Waste Management of Connecticut, Inc., 239 Conn. 515, 525 (1996).
Those three concepts, common-law recklessness, bad faith in the performance of contractual obligation amounting to a breach of the covenant of good faith and fair dealing and the equitable concept of unclean hands, accurately summarize the defendant’s first five Special Defenses, wherein certain omissions and commissions of the plaintiff are alleged in order to prove that the plaintiff is not entitled to recover on either of its two bond claims, because the plaintiff was "reckless," "unfair," and/or guilty of "unreasonable conduct."
The court notes that the Payment Board contains no such obligation of the plaintiff as claimant not to exercise "bad faith" or "unclean hands." The statute authorizing the substitution of a bond far a mechanics lien contains no such obligation for a plaintiff. Gen. Stat. § 49-37. A parallel statute for governmental mechanics lien and the substitution of a bond contains no such obligation for a plaintiff. Gen. Stat. § 49-42. The defendant has not cited to well-settled Connecticut case law that permits such consideration of plaintiff’s conduct, in litigation on either a substituted bond for a mechanics lien or a construction payment bond.
Despite those deficiencies, this court will now examine the facts of the plaintiff’s conduct through the lens of common-law recklessness, "unclean hands" and "bad faith."
In this litigation three principal players in this construction project were not joined as parties in the litigation; The real property owner, Stamford Phase 4 JV, LLC, the project general contractor, The Morganti Group, Inc. and the concrete subcontractor, Concrete Superstructures, Inc. (CSS). The evidence before this court has clearly established that CSS has defaulted in its contract obligations, failed to complete its contract obligations and was ordered off the job by the contractor, The Morganti Group, Inc. Based upon the testimony, the documents submitted and the strong inference created thereby, this court concludes that CSS at the time that their contract was terminated and to this date is judgment proof. The court further finds that CSS was invited into this construction project in January 31, 2016 by The Morganti Group, Inc. when the subcontract was entered into between CSS and The Morganti Group, Inc. Ex. 2. The plaintiff, O&G had nothing to do with bringing CSS into this construction project. CSS did contact O&G requesting that O&G supply contract and quarry materials in fulfillment of the underlying CSS subcontract with The Morganti Group, Inc. O&G was not a party to any contract between it and The Morganti Group, Inc., American or the real property owner. O&G’s first delivery of materials and supplies on CSS’s credit to the job site at 1011 Washington Boulevard, Stamford, Connecticut was on September 3, 2016. Ex. 67, first page. From April 2016 to September 2016 O&G delivered concrete to the site at the request and credit of The Morganti Group, Inc. O&G was paid in full and on time by The Morganti Group, Inc. up to September 2016. The delivery tickets in Exhibit 67 indicates the material and supplies were "SOLD TO Concrete Superstructures, Inc." and not sold or delivered to any other party, individual or entity.
O&G was one of many material suppliers for this very large construction project. The Payment Bond protected all material suppliers equally. All material suppliers had the right to make a claim upon the payment bond simply by meeting the terms of Section 16.1. No other conditions were set forth in the Payment Bond for any material supplier to make a claim that they had not been paid for materials furnished to them to this construction project. The Payment Bond did not require any material supplier to perform credit checks on the subcontractor who hired them. The Payment Bond makes no mention of O&G by name. O&G did not sign, guarantee or otherwise participate in a modification or amendment of the Payment Bond. From all the evidence including silence thereon the court can find that the Payment Bond was not modified or amended during the entire construction project.
The Morganti Group, Inc. did not hire O&G. CSS did. There is no evidence that The Morganti Group, Inc. completed or even attempted to complete the credit application and procedure engaged in by O&G, yet O&G is faulted for doing that which The Morganti Group, Inc. and the defendant surety failed to do. Neither The Morganti Group, Inc. nor the defendant ever obtained or requested a list of documents that has been listed in the defendant’s Post-Trial Brief (# 123.00, page 4). Only O&G obtained those documents.
When CSS proposed in September 2016 to charge O&G materials to CSS’s account, The Morganti Group, Inc. did not object nor did it or the defendant offer certain protective tools to verify that CSS would in fact pay O&G in full and timely. COD would be one of those protective tools.
The Morganti Group, Inc. would not enter into another protective tool, a joint check agreement, without O&G waiving its right to file a mechanics lien. Such a waiver is not permitted by Connecticut statutes.
The defendant argues that after September 2016, when O&G first did not get paid by CSS, O&G should have shut off future delivery to this large construction project. If that occurred, the parking garage, lower level and foundation could never have been constructed. The entire project would be thrown into chaos and eventually have been shut down. This would have caused litigation and claims between all parties, no less than massive claims, much larger than currently in front of this court as against that same Payment Bond. The defendant claims that O&G was negligent since it never sued CSS, where the evidence before this court supports a reasonable inference that CSS was judgment proof.
Over five days of trial the defendant extensively litigated in detail various documents originated by and/or referencing O&G in an attempt to show one or all of the five alleged Special Defenses. In sum those offerings, if outlined and discussed in this Memorandum of Decision, would virtually quadruple its size.
The Morganti Group, Inc. entered into the January 31, 2016 Subcontractors Agreement with CSS. Ex. 2. A further agreement was prepared by The Morganti Group, Inc. but it failed to have CSS execute that amended agreement. That amended agreement provided for the protection of all parties if CSS failed in its obligations. It provided for a joint check arrangement wherein all checks would be payable to the concrete supplier and CSS. It provided for COD, Cash on Delivery.
There was no evidence that The Morganti Group, Inc. did any credit check on CSS before bringing CSS into the construction family. There is no evidence that American did a credit check on CSS. American is now being critical of O&G in doing a credit check after American had already issued the Payment Bond that was signed by The Morganti Group, Inc. without doing a CSS credit check.
O&G was within its rights to reject the joint check agreement that Morganti Group, Inc. offered since that joint check agreement contained a waiver of the right of O&G as supplier to file a mechanics lien. Such a term violates Connecticut law. Gen. Stat. § 42-1581.
The Morganti Group, Inc. could have continued to have the concrete delivered by O&G under its own credit, which was the method of concrete delivery from April 2016 to September 2016.
The Morganti Group, Inc. was advised and had knowledge that CSS owed O&G over $225,000.00 for unpaid concrete in the fall of 2016, yet the Morganti Group, Inc. armed with that knowledge, paid CSS directly without providing for O&G to be paid at the same time.
There were no terms in the Payment Bond or the bond in substitution that required O&G not to make a claim on either bond. There were no conditions precedent that O&G had to accomplish before it could make a claim on the Payment Bond other than those contained in Section 16.1.3. Ex. 1.
In the event that it is found that certain equitable defenses in the first five Special Defenses are applicable, this court finds that the burden of proof is on the defendants to prove that the actions, commissions and/or omissions of O&G amounted to bad faith as defined in claims of the breach of covenant of good faith and fair dealing, common-law recklessness and/or unclean hands. This court therefore finds as an alternative finding that the defendant has failed to sustain its burden of proof of bad faith, common-law recklessness and/or of the plaintiff unclean hands as to O&G.
The defense of laches, if proven, bars a plaintiff from seeking equitable relief ... First, there must have been a delay that was inexcusable, and, second, that delay must have prejudiced the defendant. (Internal quotation marks omitted.) Id. The burden is on the party alleging laches to establish that defense. Cummings v. Tripp, 204 Conn. 67, 88, 527 A.2d 230 (1987). The mere lapse of time does not constitute laches ... unless it results in prejudice to the [opposing party] is led to change his position with respect to the matter in question. (Internal quotation marks omitted.)Fromm v. Fromm, 108 Conn.App. 376, 385-86, 948 A.2d 328 (2008).
The evidence discloses that the plaintiff commenced its two-count law suit within the time constraints of the Performance Bond and the mechanic’s lien statutes. No evidence of delay was provided to this court. The defendant has failed to sustain its burden of proof that it suffered prejudice by the alleged commissions and/or omissions of the plaintiff.
The court hereby finds the issues on the First, Second, Third, Fourth and Fifth Special Defense for the plaintiff, O&G Industries, Inc.
The Sixth Special Defenses alleges as follows: "O&G’s claims against American Home Assurance Company are barred in their entirety because both the Owner, and Morganti, American Home Assurance Company’s bond principals, have paid in full for all of concrete material furnished to CSS on the Project." This court has already found that O&G’s claim has been verified in the amount of $484,919.30, that they have furnished supplies to the construction project in that amount and the O&G has not been paid by the property owner, the contractor, the surety or CSS as to any of the $484,919.30. The mere fact that the owner and/or The Morganti Group, Inc. may very well have made payments to CSS and CSS thereafter failed to pay its suppliers including the plaintiff, O&G, is not a defense to either of the two counts. A mechanics lien is a statutory proceeding. Gen. Stat. § 49-36 only permits such prepayment credit to property owners, not the general contractor. The issues on the Sixth Special Defense are found for the plaintiff, O&G.
The Seventh Special Defense claims that the underlying mechanics lien is invalid pursuant to General Statutes § 49-33 et seq. because the lien amount is overstated and because no amounts are due and owing from the Owner, Morganti, or American Home Assurance to O&G for any of the materials alleged to have been furnished by O&G on the Project.
This court has already found that O&G is owed $484,919.30. That fact has been conceded by American’s Post-Trial Brief. O&G has delivered that material to the construction site. It was used in the construction. It was a covered party under both the bond substituted for the mechanics lien and a covered supplier on the Payment Bond. Ex. 1. O&G has not been paid and it is entitled to make its claim against both of those bonds. The defendant has judicially admitted those facts. (# 123.00, page 1.) The Seventh Special Defense relates only to Count One as to the mechanics lien. The issues on the Seventh Special Defense are found for the plaintiff.
The Eighth Special Defense alleges as to the Payment Bond that: "O&G and CSS never entered into a written agreement for the provision of concrete material to the Project" and "a copy of the agreement or purchase order" is required by the Payment Bond. This court has already made a finding that Exhibit 1, Paragraph 16.1 § 3 has been complied with by the extensive documents before this court which satisfy completely that precondition. The issues on the Eighth Special Defense are found for the plaintiff.
The Ninth Special Defense claims: "O&G’s claims are barred, in whole or in part, because the contract that O&G is seeking to enforce is an oral contract for the sale of goods in excess of $500 and therefore unenforceable pursuant to Connecticut General Statutes § 42a-2-201." That section is also entitled "Formal Requirements, statute of frauds." It states: "... a contract for the sale of goods for the price of five hundred dollars or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by his authorized agent or broker. A writing is not insufficient because it omits or incorrectly states a term agreed upon but the contract is not enforceable under this paragraph beyond the quantity of goods shown in such writing." The defendant has not plead or briefed or argued the older Connecticut statute of frauds, Gen. Stat. § 52-550. P.B. § 10-50 does not require that any form of the statute of fraud must be "specifically pleaded."
Gen. Stat. § 42a-2-201 is part of the UCC, the Uniform Commercial Code. The first question that must be asked is whether or not the materials and services being provided by O&G to CSS were "sale of goods." The section at issue covers only "transactions in goods." Gen. Stat. § 42a-2-102. "Goods" is separately defined in the UCC; "goods means all things, including specially manufactured goods, which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities covered by article 8 and things in action. Goods also includes the unborn young animals and growing crops and other identified things attached to realty as described in Section 42a-2-107." Gen. Stat. § 42a-2-105(1). The UCC also contains a provision for goods to be severed from realty. "A contract for the sale apart from the land of growing crops or other things attached to realty and capable of severance without material harm thereto but not described in subsection (1) or if timber to be cut is a contract for the sale of goods within this article whether the subject matter is to be severed by the buyer or by the seller even though it forms part of the realty at the time of contracting, and the parties can by identification affect a present sale before severance." Gen. Stat. § 42a-2-107(2). The underlying construction contract at issue in this litigation calls for the building of a nineteen-story luxury apartment building with parking and retail facilities on the lower levels. Compared to other large buildings in Connecticut this would be clearly identified as a high rise structure although the actual construction plans and specifications were not before this court. It appears that the subcontract between The Morganti Group, Inc. as the project contractor and CSS contemplated that CSS would be responsible for the concrete foundations and lower supports of the building.
Gen. Stat. § 42a-2-201, a statute of frauds for goods sold, contains an exception. "A contract which does not satisfy the requirements of subsection (1) which is valid in other respects is enforceable (a) if the goods are to be specially manufactured for the buyer and are not suitable for sale to others in the ordinary course of a seller’s business ..." Gen. Stat. § 42a-2-201(3). This is referred to as the "specially manufactured exception."
The initial written document between O&G and CSS is on an O&G form entitled Redi-Mix Price Quotation dated April 4, 2016. Ex. 5. In that quotation are six separate types of concrete mixes each containing different components, descriptions and a different price per cubic yard. In addition, other cost items are added for a retarder, water reducer, chloride accelerator, 1/2 inch aggregate, 2/3 inch aggregate, cement only mixes, non-chloride accelerator, winter heat, synthetic fibers, midrange plasticizer, and super plasticizer. A specific notation called for "lightweight shall be air dry equilibrium weight pump mix." The actual deliveries by O&G to the construction site commenced almost immediately to the account of The Morganti Group, Inc. In September 2016 O&G started its delivery to CSS’s account. Each delivery to the construction site at 1011 Washington Boulevard, Stamford, Connecticut from September 2016 to December 2016 was supported by a preprinted one-page O&G form. Most of the information in the blank boxes was typed in. Some information also was contained in handwriting including the time that the load was prepared, left the plant, arrived on the job, started the pour, finish the pour, left the job, and arrived at the plant. A truck number as well as the name of the driver were filled in in handwriting and space for three signatures and/or initials were also contained on that form. Each of these forms were placed in chronological order in a black binder with each page Bates stamped from number 1062 consecutively to number 1378. Therefore, Exhibit 67 contained 317 pages of O&G forms generally filled out in the manner already explained in this paragraph. A second set of O&G prepared forms also contained in Exhibit 67 appears to be a preprinted form with customer job truck product and load total information contained, dated and timed with a line for the buyer to sign. Of the 319 pages in Exhibit 67, 44 are of this format. Each of those 44 pages indicates the plant as being Monroe Quarry. It does not appear that any of those 44 pages duplicates the information contained in the balance of Exhibit 67.
Each of the 317 pages in Exhibit 67 contains a detail list of the product description all of which was designed to be included within the foundation and support structure for this large high rise building.
There is little Connecticut law on the "specially manufactured exception" to the goods statute of fraud under Gen. Stat. § 42a-2-201(3).
The delivery of 160, 000 gallons of heating oil to the defendant’s long-term acute care hospital was found to be "goods" for the purposes of the statute of frauds and was not covered by the exception set forth in Gen. Stat. § 42a-2-201(3). East River Energy, Inc. v. Gaylord Hospital, Inc., Superior Court, judicial district of New Haven, Docket Number NNH-CV09-5029078S (June 15, 2011, Wilson, J.) . This court has been unable to find any Connecticut case in which the above mentioned exception applies to the sale of construction materials.
The Indiana Court of Appeals found that a contract for a construction job with a seller furnishing materials including asphalt was enforceable under the UCC § 2-201(3)(a), which appears to be identical to the Connecticut statute. Rose Acre Farms, Inc. v. L.P. Cavett Co., 151 Ind.App. 268, 279 N.E.2d 280 (1972)." ... therefore by the weight of good common sense, blacktop that has already been packed down and laid in place is goods which is manufactured specially for the buyer and for which this seller or any other seller would be hard pressed to find a suitable sale in the ordinary course of his business." Id., 286.
In a construction contract in New York where the claimed breach of an oral contract was for the manufacture and sale of kitchen cabinets, the court held that they were specially manufactured and the enforcement of the contract was not barred by the statute of frauds citing the same UCC subsection 3. Standard Builders Supplies v. Gush, 614 N.Y.S.2d 632, 206 A.D.2d 720 (1994). In Ohio the sale of steel reinforcing rods in a construction contract was held to be enforceable notwithstanding the same section of the statute of frauds. Frank Adams & Co., Inc. v. Baker, 1 Ohio App.3d 137, 439 N.E.2d 953 (1981).
This was a major individualized construction project that needed concrete of strength, capacity and resiliency to support nineteen floors of luxury apartments in a high rise building. There is no evidence before this court to establish that the concrete mix materials and supplies that were delivered by O&G to CSS at the construction site would thereafter be suitable for delivery and sale to another customer. This court finds that the "specially manufactured exception" under Gen. Stat. § 42a-2-201(3) is applicable and the UCC statute of frauds is not a defense in this matter.
In addition, this statute of frauds contains the following language" ... unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the parties against whom enforcement is sought or by his authorized agent or broker." Gen. Stat. § 42a-2-201(1). Although not every single one of the 317 pages of delivery tickets contains either the initial or the signature, a majority of those delivery tickets are signed by an agent and authorized employee of CSS. Exhibit 6, the Credit Agreement, was signed by CSS. This court finds that the Exhibit 67 and Exhibit 6 satisfies the requirement of "some writing sufficient."
This court has examined carefully the hundreds of invoices and delivery tickets contained in Exhibit 67. Although the court has not taken the time to conduct a detailed analysis and no witnesses at trial did so, this court finds that they support the $484,919.30 claim in this case. In the main each of the delivery tickets are executed by a representative of CSS at the construction site. This court finds that General Statutes § 42a-2-201(1) is satisfied by Exhibit 67.
Neither of the defendant’s Post-Trial briefs mentions the statute of fraud defense or the Ninth Special Defense. The court finds that the defendant has abandoned the Ninth Special Defense by inadequate briefing. Verderme v. Trinity Estates Development Corporation, 92 Conn.App. 230, 231-32 (2005).
The court finds the issues for the plaintiff to the Ninth Special Defense.
In sum, the plaintiff has sustained its burden of proof as to Count One, its suit on the bond substituted for the mechanic’s lien, and as to Count Two, a claim against the Payment Bond, both in the total amount of $484,919.30. Judgment will enter in favor of the plaintiff, O&G Industries, Inc., against the defendant, American Home Assurance Company, as surety as to Counts One and Counts Two each in the amount of $484,919.30.
The court has found all of the issues on the nine Special Defenses filed by defendant, American Home Assurance Company, on November 20, 2017 (# 109.00) for the plaintiff, O&G Industries, Inc.
The court finds that the sum due at $484,919.30 has been wrongfully withheld. Sosin v. Sosin, supra, 300 Conn. 229-30. The court in its discretion awards prejudgment interest at the rate of five (5.0%) per cent per annum. The prejudgment interest at five (5.0%) percent will commence on the entire $484,919.30 commencing on February 2, 2017, the date of the claim letter to the defendant. Ex. 51. Interest on $484,919.30 (rounded off to the nearest dollar) times five (5.0%) per cent from February 2, 2017 through and including June 25, 2019 is $57,930 (rounded off to the nearest dollar).
Judgment will enter on both counts in favor of the plaintiff, O&G Industries, Inc. as against the defendant, American Home Assurance Company in the amount of $542,849 ($484,919 plus $57,930 interest = $542,849).
On May 15, 2018 the plaintiff, O&G Industries, Inc. filed an Offer of Compromise in the amount of $460,000 (# 113.00). The court file contains no other pleadings addressed to the Offer of Compromise, either an acceptance, rejection, modification, or withdrawal. In accordance with Gen. Stat. § 52-192a(c), "After trial the court shall examine the record to determine whether the plaintiff made an offer of compromise which the defendant failed to accept. If the court ascertains from the record that the plaintiff has recovered an amount equal to or greater than the sum certain specified in the plaintiff’s offer of compromise, the court shall add to the amount so recorded eight per cent annual interest on said amount ... The interest shall be computed from the date the complaint in the civil action ... was filed ... not later than eighteen months from the filing of such complaint." The court finds that the Return Date in this civil action was July 25, 2017, the Return of Service is dated July 3, 2017 (# 100.30), the complaint is dated June 30, 2017, the complaint was filed in the Stamford Superior Court on July 6, 2017, and the Offer of Compromise was dated and filed on May 15, 2018 (# 113.00). The court finds that the "not later than eighteen months," condition was met and eight (8.0%) per cent simple interest under Gen. Stat. § 52-192a(c) shall commence on July 6, 2017.
Case law has held that the calculation of Offer of Compromise interest is applied to all of the components of the underlying court monetary award. "Nothing in the language of § 52-192a(a) or (b) indicates that the offer of judgment must not include § 37-3a interest. Furthermore, our case law provides that such interest is an element of damages. Flynn v. Kaumeyer, 67 Conn.App. 100, 107 (2001). The judgment of this court as of June 25, 2019 is $542,849 including prejudgment interest. The court will now calculate the "eight per cent annual interest on said amount" of $542,849. That offer of compromise interest of 8.0% on $542,849 from July 6, 2017 through and including June 25, 2019 is $85,554. That sum is to be added to the aforesaid judgment of $542,847. The resulting judgment is $628,403 ($542,849 + $85,554 = $628,403).
As to the remaining issues that need to be resolved, this court is requesting that the parties obtain a new date from Stamford Civil Caseflow on the subject of attorneys fees as contained in the Performance Bond and as contained in Connecticut General Statutes § 52-249(a). So too, if this court awards the plaintiff attorney fees pursuit to the legal authority mentioned in this Memorandum of Decision, a determination needs to be made as to whether those attorney fees are subject of prejudgment interest and/or Offer of Compromise interest and the calculation thereof, if any. These issues should be resolved by this court at the above mentioned Postjudgment hearing.
The Postjudgment hearing will include all of the above mentioned issues as to Offer of Compromise interest, its calculation, prejudgment interest, and its calculation, and attorney fees. Any party may file a timely procedurally correct Motion to Reargue concerning the determination of interest in any form and the calculation thereof. PB § 11-12: Izard v. Izard, 88 Conn.App. 506, 509-10 (2005): Moore v. Moore, 173 Conn. 120, 122 (1977).