Opinion
MICV2013-01174-F
06-10-2014
Smith Ironworks, Inc. v. The Torrey Company, Inc. et al
Filed Date June 11, 2014
MEMORANDUM OF DECISION AND ORDER ON THE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND THE PLAINTIFF'S CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT
DENNIS J. CURRAN, Associate Justice.
Smith Ironworks, Inc. filed suit against The Torrey Company, Inc. and The Ohio Casualty Co. seeking payment of an unpaid subcontract balance and alleging that Torrey and Ohio engaged in unfair and deceptive trade practices in violation of G.L.c. 93A. Smith and Torrey submitted their dispute to arbitration. All issues between them have been resolved. This matter is now before the court on Ohio's motion for summary judgment and Smith's cross motion for summary judgment under Mass.R.Civ.P. 56(c). Ohio seeks to dismiss Counts IV (G.L.c. 93A), V (mechanic's lien), and VII (payment bond) of Smith's amended complaint. Smith opposes and cross moves for summary judgment, seeking a resolution in its favor on those claims. Smith also moves to compel discovery under Mass.R.Civ.P. 56(f) and seeks additional time to review the discovery responses and further address Ohio's motion.
For the following reasons, Ohio's motion is ALLOWED and Smith's cross motion is DENIED.
BACKGROUND
The following facts are taken from the summary judgment record and statement of undisputed material facts filed jointly by the parties under Superior Court Rule 9A(b)(5).
In March 2012, construction began on the 55 Boylston Street Project located in Chestnut Hill. Torrey was the project's general contractor. On March 2, 2012, Torrey hired Smith as a subcontractor to perform certain structural steel work. The companies entered into a subcontract which defined the scope of work that Smith was responsible for and identified a price that Torrey would pay Smith. During construction, the project owner made several design changes which increased the scope of Smith's work from what was originally identified in the subcontract. Smith and Torrey disagreed over how much each change would cost and therefore could not agree on an ultimate price.
Smith completed all of its work for the project by October 2012. On December 6, it sent Torrey its ninth application for payment. In the application, Smith requested $495,892.60, an amount which Torrey had previously withheld as retainage due to the terms of the subcontract. Torrey acknowledged receipt of the application that same day. However, it did not approve or reject the application. Because the project's cost exceeded $3,000,000, all subcontracts governing the project's labor and materials, like the subcontract between Torrey and Smith, were subject to the Massachusetts Prompt Payment Act, G.L.c. 149, § 29E. Under this Act, Smith's application was deemed approved on December 28; twenty-two days after Torrey acknowledged receiving it. The Act required Torrey to pay the amount listed in the application forty-five days after approval, by February 2, 2013. Torrey failed to do so.
In February 2013, Smith filed a lien on the project in excess of $1,500,000 for what Smith believed was the remaining balance due under the subcontract. Torrey obtained and recorded lien, performance, and payment bonds to transfer Smith's and a sub-subcontractor's lien filings to such bonds. Ohio was the surety on these bonds. Under the lien bond, Ohio promised to pay a judgment arising out of the lien if Torrey failed to pay the amount adjudged. Under the payment bond, Ohio agreed to pay any undisputed amount that Torrey owed to individuals or companies furnishing labor and materials for the project if Torrey failed to do so.
On April 4, 2013, Smith filed this action against Torrey and Ohio seeking, among other things, to enforce the payment bond. This was the first claim for payment that Smith made on the bond. Smith also sought an injunction to prevent Chestnut Hill, the owner of the project, from paying Torrey $1,284,438.40. On April 8, upon agreement of Smith, Torrey, and Chestnut Hill, the Court issued a temporary restraining order which required Chestnut Hill to hold the requested amount in escrow until this dispute was resolved.
Smith amended its complaint on April 17, 2013 to add a payment bond claim against Ohio.
David Costa, Torrey's vice-president, submitted an affidavit in support of its opposition to Smith's motion for a temporary restraining order. In the affidavit, he outlined an accounting of what Torrey believed was the remaining balance owed to Smith under the subcontract. He then noted that although the accounting showed a balance of $132,462.33, Chestnut Hill had not yet released the retainage on that balance. On November 12, 2013, Smith, through counsel, sent a letter to Ohio making a second claim on the payment bond. In the letter, Smith alleged that Mr. Costa's accounting of the subcontract balance constituted an admission that Torrey owed Smith $132,462.33. Ohio, through counsel, responded and alleged that Smith misconstrued Mr. Costa's affidavit and his statement actually denoted that there was a negative subcontract balance as of that date.
Smith argues that by giving this accounting, Costa admitted to owing Smith $132,462.33. Ohio disagrees and alleges that Mr. Costa's statement could not be reasonably construed as an admission that Torrey owed Smith anything. Further, according to Ohio, Mr. Costa's affidavit made clear that due to the unreleased retainage, there was actually a negative subcontract balance of $401,181.03 at that time.
Smith and Torrey voluntarily submitted their disputes to arbitration on October 29, 2013. Ohio did not join in on the arbitration. The arbitrator issued his decision and award on January 3, 2014. This decision addressed and resolved all of the remaining disputes between Smith and Torrey. In his decision, the arbitrator ruled that Torrey violated the Prompt Payment Act by failing to respond properly to and pay Smith's application for payment number 9. He found that, under the Act, Torrey was required to pay Smith the requested amount of $495,892.60 by February 11, 2013 and, when it failed to do so, interest began to accrue at $163.03 per day (statutory rate of 12% per year) up until January 4, the date of the award. Therefore, he found that Smith was entitled to the amount due under application number 9 as well as a total of $53,147.78 in interest.
The arbitrator modified the award on January 14 after Smith filed two post-award motions. The first modification related to the pending suit filed against the parties by a sub-subcontractor and the second awarded costs to Smith.
The arbitrator ruled that because the amount due under the application exceeded the net amount awarded to Smith from the arbitration proceedings, Smith was not entitled to any further interest payments.
However, the arbitrator ruled that Torrey's conduct did not amount to a violation of c. 93A. He found that Torrey's violation of the Prompt Payment Act was not an unfair and deceptive trade practice and further found that Smith contributed to Torrey's failure to make timely payments by refusing to produce cost records and refusing to help Torrey develop change order packages suitable to submit to Chestnut Hill. He also took into consideration the fact that Chestnut Hill was withholding over $1,200,000 from Torrey at Smith's request.
The arbitrator made clear and detailed findings as to each disputed change, credit, charge, backcharge, and offset to the amount remaining under the subcontract and thoroughly addressed each of Smith's outstanding payment applications. Ultimately, he awarded Smith $781,927.38. He emphasized in his decision that this amount represented the entire outstanding balance that Torrey still owed to Smith for the work it completed on the project.
On February 3, 2014, Chestnut Hill wired $789,307.34 from the escrow account to Smith's counsel's IOLTA Account. Under the arbitration agreement, $276,474.29 of that sum was immediately released to Smith while the remainder was held in a separate escrow account until a suit that was filed by a sub-subcontractor against Smith and Torrey and a sales tax issue could be resolved.
In its motion, Ohio moved to dismiss Count V (mechanic's lien) of Smith's Amended Complaint. Smith does not oppose this motion. Torrey paid the full amount granted to Smith under the arbitration award and fully satisfied the judgment arising out of the lien; Ohio's obligation under the bond is now void. Count V is, thus, dismissed.
Summary judgment shall be granted where there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Mass.R.Civ.P. 56(c); Brigade Leveraged Capital Structures Fund Ltd. v. Pimco Income Strategy Fund , 466 Mass. 368, 373, 995 N.E.2d 64 (2013). " In a case like this one where both parties have moved for summary judgment, the evidence is viewed in the light most favorable to the party against whom judgment is to enter." Albahari v. Zoning Bd. of Appeals of Brewster , 76 Mass.App.Ct. 245, 248 n.4, 921 N.E.2d 121 (2010).
To meet its burden of proof, the moving party must support its motion with at least one of the materials listed in Rule 56(c). Kourouvacilis v. General Motors Corp., 410 Mass. 706, 714, 575 N.E.2d 734 (1991), citing Celotex Corp. v. Catrett , 477 U.S. 317, 328, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (White, J., concurring). " [A]lthough that supporting material need not negate, that is, disprove, an essential element of the claim of the party on whom the burden of proof at trial will rest, it will demonstrate that proof of that element at trial is unlikely to be forthcoming." Id.
Once the moving party meets its burden, the non-moving party must provide specific facts to show that there is a genuine issue for trial. Id. at 716. Unsupported contradictions of factual allegations are insufficient to raise questions of material fact sufficient to defeat a summary judgment motion. Madsen v. Erwin , 395 Mass. 715, 719, 481 N.E.2d 1160 (1985).
The court may consider pleadings, depositions, answers to interrogatories, admissions on file, and affidavits when making its decision. Cataldo Ambulance Serv. v. Chelsea , 426 Mass. 383, 388, 688 N.E.2d 959 (1998). However, it does not weigh the evidence, determine witness credibility, or make its own findings of fact. Attorney Gen. v. Bailey , 386 Mass. 367, 370-71, 436 N.E.2d 139 (1987).
The Payment Bond
Smith alleges that Torrey has failed to pay certain amounts that it believes Torrey owed for the work it performed on the project. Specifically, it claims that Torrey failed to pay application number 9 as well as $132,462.33, an amount Mr. Costa allegedly admitted owing to Smith, when each became due. The payment bond was set in place to secure Torrey's undisputed, outstanding debts to subcontractors performing labor or furnishing materials for the project. See Reliance Ins. v. City of Boston , 71 Mass.App.Ct. 550, 557, 884 N.E.2d 524 (2008) (noting that the acquisition of a payment bond provides additional assurance that a construction project will be completed and the subcontractors performing work on the project will be paid). As the bond's surety, Ohio promised to pay such debt if Torrey failed to do so. See Costa v. Brait Builders Corp. , 463 Mass. 65, 67 n.4, 972 N.E.2d 449 (2012), citing J. Lewin & C.E. Schaub, Jr., Construction Law , § 9:3 at 619-20 (2009-2010). Thus, Smith contends that because it made claims on the bond for each of these amounts, Ohio should have made the payments when Torrey failed to do so. However, Ohio was only obligated to pay these debts when it became clear that Torrey was indisputedly liable for them.
A surety's obligation under a payment bond directly corresponds to that of its principal. John W. Egan Co. v. Major Constr. Mgmt. Corp. , 46 Mass.App.Ct. 643, 646, 709 N.E.2d 66 (1999). The " surety stands in the shoes of [its principal] and is liable only to the extent that [the principal] is liable." M.J. Flaherty Co. v. United States Fid. & Guar. Co. , 61 Mass.App.Ct. 337, 339, 810 N.E.2d 823 (2004). The evidence shows that Torrey's liability to Smith was unclear up until the arbitrator issued his decision. In fact, the parties agreed to arbitration in order to settle this very issue.
In his decision, the arbitrator determined Torrey's liability and awarded Smith what he found to be the outstanding balance under the subcontract. The arbitrator specifically stated that this award covered the entire amount still owed to Smith for the work it performed on the project plus any interest that Smith was entitled to receive. Thus, this amount included the balance listed in application number 9 in addition to the interest that had accrued since the deadline for payment set by the Prompt Payment Act and the alleged amount that Mr. Costa identified in his affidavit.
When the arbitrator issued his award, it became clear that Torrey and Ohio were liable to Smith for a total of $789,307.34. See, e.g., Costa , 403 Mass. at 70 n.10 (where the court held that the jury decided the principal's and thus the surety's liability under a payment bond and the amount that both were liable for was reflected in the general damages award). However, as the surety, Ohio was only required to pay Smith if Torrey failed to do so. See John W. Egan Co. , 46 Mass.App.Ct. at 646 (noting that " principal and surety are bound, jointly and severally, in a stated penal sum, conditioned on the principal's performance"). Torrey paid the full amount of the award on February 3, 2014. Thus, as of that date, Ohio's obligation to Smith was extinguished. Smith cannot now look to Ohio to recover amounts it already received from Torrey because it may be unhappy with the total amount awarded by arbitrator or because some of that money is tied up in escrow due to unrelated matters. See C& I Steel, LLC v. Traveler's Cas. Ins. Co. , 70 Mass.App.Ct. 653, 657, 876 N.E.2d 442 (2007) (" A surety 'cannot be holden beyond the fair scope of [its] engagement, as intended by the parties when undertaken' " (citation omitted and alteration in original)).
Chapter 93A Claims
Smith alleges that Ohio committed unfair and deceptive trade practices thereby violating G.L.c. 93A, § § 2 and 11 by failing to investigate properly its claims on the payment bond and by failing to pay undisputed portions of these claims. As support for its c. 93A claim, Smith contends that Ohio engaged in conduct prohibited by G.L.c. 176D. General Laws c. 176D is a statute that regulates practices within the insurance business. Section 3 identifies certain unfair claim settlement practices, specifically categorizing " [r]efusing to pay claims without conducting a reasonable investigation based upon all available information[, ]" and " [f]ailing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear . . ." as unlawful. G.L.c. 176D, § 3(9)(d), (f). While there is no independent right of recovery under G.L.c. 176D, § 3(9), courts view violation of this statute as evidence of unfair and deceptive conduct. Polaroid Corp. v. Travelers Indem. Co. , 414 Mass. 747, 754, 610 N.E.2d 912 (1993).
Smith cannot point to any facts within the record to support its allegations that Ohio failed to make a reasonable investigation into its claims for payment or that Ohio failed to pay an undisputed claim, i.e. , that liability was reasonably clear. See M.J. Flaherty Co. , 61 Mass.App.Ct. at 339. Smith made its first claim for payment when it filed this lawsuit and made its second claim while this suit was ongoing. Before such time, Ohio could not have been expected to undergo an investigation into the validity of Smith's claim because they had not been filed yet.
Both of Smith's claims involved a portion of the balance remaining under the subcontract. Up until the arbitrator issued his decision, Torrey and Smith disagreed over the amount of that remaining balance and further disagreed over whether Torrey even owed Smith anything at all. Ohio, as the surety, had no obligation to pay Smith's claims until it was clear that Torrey was actually liable for them and, if liable, what that amount was. See Smyrna Rebar Co. v. United States Fid. & Guar. Co. , 65 Mass.App.Ct. 1103, 837 N.E.2d 313, 2005 WL 3041499, at *2 (Rule 1:28 decision) (2005) (concluding that the lower court properly dismissed plaintiff's c. 93A claim premised upon unfair settlement practices because the record showed that the defendant's liability was not reasonably clear). At the time Smith made its claims on the payment bond, neither Torrey's nor Ohio's liability was reasonably clear. Therefore, Smith's c. 93A claim must fail. See FundQuest Inc. v. Travelers Cas. & Sur. Co. , 715 F.Supp.2d 202, 211 (D.Mass. 2010) (noting that where there is a good faith dispute as to liability or damages, a c. 93A claim based upon unfair claim settlement practices must fail); see also R.W. Granger & Sons , 435 Mass. at 73 (where the court noted that " [a] ruling that conduct violates G.L.c. 93A is a legal, not a factual determination").
Rule 56(f)In conjunction with its cross motion, Smith also filed a motion to compel discovery and seeks additional time to review such discovery responses under Mass.R.Civ.P. 56(f). However, in its papers and at the hearing, Ohio stated that it has now responded to all of Smith's document requests and interrogatories. Ohio's counsel also noted that it has made all of the non-privileged documents that Smith seeks available for review at its office. Further, Smith has failed to state in its affidavit how these documents and interrogatory responses would have assisted its opposition. See MassR.Civ.P. 56(f) (" Should it appear from the affidavits of a party opposing the motion that he cannot for reasons stated present by affidavit facts essential to justify his opposition, the court may refuse that application for judgment or may order a continuance . . ."). Smith's 56(f) motion is, therefore, denied.
ORDER
For these reasons, Ohio's motion for summary judgment is ALLOWED and Smith's cross-motion for summary judgment and motion to compel discovery and stay the court's decision under Mass.R.Civ.P. 56(f) is DENIED.