Aliberti, LaRochelle & Hodson Eng. v. FDIC, Civ. No. 92-157-P-C.

• Decision Date: 23 February 1994
• Docket Number: Civ. No. 92-157-P-C.
• Citation: 844 F. Supp. 832
• Parties: ALIBERTI, LaROCHELLE & HODSON ENGINEERING CORP., INC., and AL & H Construction Management, Inc., Plaintiffs v. FEDERAL DEPOSIT INSURANCE CORP., Counterclaimant and Third-Party Plaintiff v. ALIBERTI, LaROCHELLE & HODSON ENGINEERING CORP., INC., AL & H Construction Management, Inc., Donald LaRochelle, Third-Party and Counterclaim Defendants.
• Court: U.S. District Court — District of Maine

844 F. Supp. 832

ALIBERTI, LaROCHELLE & HODSON ENGINEERING CORP., INC., and AL & H Construction Management, Inc., Plaintiffs v. FEDERAL DEPOSIT INSURANCE CORP., Counterclaimant and Third-Party Plaintiff v. ALIBERTI, LaROCHELLE & HODSON ENGINEERING CORP., INC., AL & H Construction Management, Inc., Donald LaRochelle, Third-Party and Counterclaim Defendants.

Civ. No. 92-157-P-C.

United States District Court, D. Maine.

February 23, 1994.

John B. Cole, Auburn, ME, for plaintiffs.

Elizabeth G. Knox, Thompson & Bowie, Portland, ME, for Donald LaRochelle.

Len Gulino, Preti, Flaherty, Beliveau & Pachios, Portland, ME, for FDIC.

MEMORANDUM OF DECISION AND ORDER

GENE CARTER, Chief Judge.

This civil action arises out of a failed real estate construction project. The original Plaintiffs, and now Counterclaim Defendants, Aliberti, LaRochelle & Hodson Engineering, Inc. and Aliberti, LaRochelle & Hodson Construction Management, Inc. filed this action on the theories of mechanics lien, breach of contract, and quantum meruit. The Federal Deposit Insurance Corporation ("FDIC")¹ counterclaimed for negligent misrepresentation and negligence against Engineering and Construction Management. The FDIC also complained against Third-Party Defendant Donald LaRochelle on the same theories. The original claims filed by Plaintiffs Aliberti, LaRochelle & Hodson Engineering, Inc. and Aliberti, LaRochelle & Hodson Construction Management, Inc. have been dismissed with prejudice. See Docket No. 73. Thus, the only issues remaining involve the counterclaims and third-party claims.

The case was tried without a jury. Based on the testimony at trial and the exhibits submitted in evidence, the Court makes the following findings of fact and conclusions of law.

I. FACTS

In the spring of 1988, First Meridian Group ("the Developer") was making plans to build a 180 unit condominium/motel project in Old Orchard Beach, Maine. The Developer contracted with two entities for the construction of the Rainbow/Seabreeze project: Aliberti, LaRochelle & Hodson Engineering ("Engineering"), and Aliberti, LaRochelle & Hodson Construction Management ("Construction Management").² Paul Beaudette was the principal representative of Construction Management. Beaudette was vice president of Construction Management and the project manager on this project. Tr. Vol. I at 329, 429. Ernest A. Ray also represented Construction Management.³ Donald LaRochelle represented Engineering on this project.⁴ Tr.Vol. II at 5. John Aliberti, president of Engineering, was also involved in the project on behalf of Engineering.

Edward McCormick, senior vice president of New Heritage Bank ("the Bank"), was first approached by the Developers about financing the Rainbow/Seabreeze project in August or September of 1988. Tr.Vol. I at 18. The first meeting between the Bank and the Developer, represented by Thomas Laudani and Chris LeSaffre, took place sometime in September 1988. Tr.Vol. I at 20. The project the Developers first described to the Bank required financing in the neighborhood of $10 million. Tr.Vol. I at 20. McCormick told the Developers that the project cost far exceeded the lending limits of the Bank. Tr.Vol. I at 20.

In subsequent meetings, the Developers proposed the possibility of streamlining the project temporarily to accommodate the Bank's lending limits. Tr.Vol. I at 22, 25. By late October, the Developers presented the Bank with a revised plan to downsize the project to 45 condominium/motel units at a cost of approximately $900,000. Tr.Vol. I at 22-23. The idea was not to eliminate permanently the other part of the project, but to undertake the construction in phases in order to permit financing within the lending limits of the Bank. Tr.Vol. I at 22.

In early November, the Developer presented the Bank with a reduced budget of $918,000 which was to cover the cost of construction for the first 45 units of the project, or "Phase I." Tr.Vol. I at 23, 28. The Bank's financing was to purchase the property and complete construction of three buildings each consisting of fifteen condominium/motel units. Tr.Vol. I at 28; Ex. 44. The Developer wanted to have Phase I of the project operating and economically self-sustaining by the summer so that unit rentals could generate sufficient income to cover the debt service on the loan. Tr.Vol. I at 23, 26.

The Bank was interested in financing this phase of the project and it began the process of what McCormick described as due diligence — where the bank investigates the economics of the project and calculates the loan-to-value ratio in order to determine the feasibility of the project. Tr.Vol. I at 34. As part of this investigation, the Bank looked at the personal financial statements of the individual Developers and assessed the projections for the average rental income which could be generated from the completion of Phase I, in the event that subsequent financing was delayed. Tr.Vol. I at 34-35. The Bank also reviewed the contracts between the Developer and Construction Management and Engineering. Tr.Vol. I at 153-54, 157.

Next, the Bank hired Ron Russo, an experienced lender's inspector, in order to verify the construction information. Tr.Vol. I at 46, 52, 236, 404. The Bank relied a great deal on Russo for the technical aspects of the construction project. Tr.Vol. I at 129. After looking at the Means Estimating Handbook, a construction industry reference book, Russo concluded that motels across the country could be built in the price range proposed by the Developer. Ex. 166; Tr.Vol. I at 238, 240. This conclusion was reinforced by research of construction costs for projects that Russo had been involved in previously. Tr. Vol. I at 240.

The Bank and Russo planned to meet with the Developer and the construction professionals. Tr.Vol. I at 53. The Bank needed Russo at the meeting because of his construction expertise to talk to the construction professionals as well as to review the budget and costs. Tr.Vol. I at 57-58, 242. The Developer informed Construction Management and Engineering about the meeting. Tr.Vol. I at 460. Beaudette told the Developer that Construction Management would be prepared to answer any questions the Bank had about the project. Tr.Vol. I at 445.

In the meantime, the Bank's loan committee issued a commitment letter to the Developers with a number of conditions attached to it. Ex. 44. Although the loan committee voted to approve the loan, final approval was based on compliance with the contingencies outlined in the commitment letter. Tr.Vol. I at 137. Appended to the commitment letter was a budget provided by the Developer with line item costs and the total project budget of $918,000 (therein and hereinafter "schedule B budget"). Ex. 44 schedule B. The commitment letter, dated December 14, 1988, was picked up by the Developer from the Bank. Engineering and Construction Management also received a copy of the commitment letter from the Bank. Tr.Vol. I at 55, 456; Tr.Vol. II at 21. After reviewing the schedule B budget, Construction Management notified the Developer that the budget contained insufficient money for each line item, and that there were line items missing such as the elevator, Construction Management fees, general costs, and winter conditions. The Developers told Construction Management that this was just an interim budget and not to worry about the missing budget items. Tr.Vol. I at 95, 461; Exs. 137, 141.

The meeting requested by the Bank was scheduled for the afternoon of December 20, 1988, at the offices of the Developer in Saco, Maine. Tr.Vol. I at 56. Earlier that day a project meeting was held between Beaudette, LaRochelle, and the Developers. Tr.Vol. I at 466-67. Financing was discussed at this meeting, Tr.Vol. I at 467, and the issue of the insufficiency of the budget came up again.⁵ Tr.Vol. I at 462. The Developer again explained they were "not to worry about it"; that this was an interim budget, and that the full financing package would encompass all the costs. Tr.Vol. I at 461.

When McCormick and Russo arrived, the Developer and the construction people were still in the project meeting. Tr. Vol. I at 57. Shortly thereafter, the meeting with the Bank got under way. Present at the afternoon meeting were McCormick, Russo, LaRochelle, Beaudette, and representatives of the Developer. Tr. Vol. I at 58, 225-26. The Developer led off the meeting, stating that the purpose of the meeting was to make sure that everything in the commitment letter was covered to the Bank's satisfaction. Tr. Vol. I at 226-27, 373. The Developer then gave an overview of what the project entailed. Tr. Vol. I at 404, 471. McCormick told everyone, at the outset, that he had to verify the cost estimates and the time frame of the project.⁶ Tr. Vol. I at 228-29, 373. He then described the Bank's understanding of the project — the downsized phase of the project, the cost of the project, the permits necessary for construction, and certain site work and underground work. Tr. Vol. I at 59-60. Russo explained his role in the project as monitoring the progress of construction for the Bank. Tr. Vol. I at 62, 83.

During the meeting, information came out that dramatically changed McCormick's understanding of how the project was to be managed. Tr. Vol. I at 63. The Developers explained that they could not comply with the commitment letter's requirement for a bonded general contractor, because of the nature of the construction process. Tr. Vol. I at 63, 65, 75, 229, 471-72. They explained that this was a fast track project, using a construction manager. Tr. Vol. I at 66; Tr. Vol. II at 17. McCormick's prior experience was with construction contracts involving a fixed price and bonding. Tr. Vol. I at 24. The Developer explained that under construction management, it is not necessary to have a complete set of detailed drawings before construction starts, unlike projects managed by a general contractor who needs a full set of...