Enterprise Capital, Inc. v. San-Gra Corp.

• Court: U.S. District Court — District of Massachusetts
• Writing for the Court: Young
• Citation: Enterprise Capital, Inc. v. San-Gra Corp., 284 F.Supp.2d 166 (D. Mass. 2003)
• Decision Date: 12 August 2003
• Docket Number: No. CIV.A. 02-10009-WGY.,CIV.A. 02-10009-WGY.
• Parties: ENTERPRISE CAPITAL, INC., Plaintiff, v. The SAN-GRA CORPORATION and United States Fidelity and Guaranty Insurance Company, Defendants.

284 F.Supp.2d 166

ENTERPRISE CAPITAL, INC., Plaintiff, v. The SAN-GRA CORPORATION and United States Fidelity and Guaranty Insurance Company, Defendants.

No. CIV.A. 02-10009-WGY.

United States District Court, D. Massachusetts.

August 12, 2003.

Linda E. Alario, Alario & Associates, P.C., Syracuse, NY, Amato J. Bocchino, Bernkopf, Goodman & Baseman, Boston, MA, Peter B. McGlynn, Bernkopf, Goodman & Baseman, Boston, MA, William R. Moriarty, Murphy & Michaels, LLP, Boston, MA, Robert D. Ryan, Electric Insurance Company, Beverly, MA, for Defendants.

W. Mark Russo, Ferrucci & Russo, PC, Providence, RI, for Plaintiff.

MEMORANDUM

YOUNG, Chief Judge.

This case involved a dispute over payment and performance surety bonds (the "Bonds"). The plaintiff and obligee on the Bonds, Enterprise Capital, Inc. ("Enterprise"), claimed that the defendants, the San-Gra Corporation ("San-Gra"), the principal on the Bonds, and United States Fidelity and Guaranty Insurance Company ("USF & G"), the surety, breached the Bonds. Enterprise further claimed that USF & G violated Massachusetts General Laws chapters 93A and 176D. On June 2, 2003, this Court issued an order entering summary judgment to San-Gra and USF & G. This memorandum explains the reasoning behind the Court's decision.

I. INTRODUCTION

A. Facts¹

In or about 1999, John and Marjorie Warfield ("the Warfields") applied to Enterprise for $2,500,000 in construction loans ("loans") in order to purchase and develop the Barton Hill Industrial Area in Bellingham, Massachusetts (the "Project"). USF & G's Mem. in Support [Docket No. 55] at 1; Pl.'s Mem. in Support [Docket No. 51] at 1; San-Gra's Mem. in Support [Docket No. 56] at 1. These loans were guaranteed by the United States Department of Agriculture (the "USDA") and thus required a "bonded" general contractor (a general contractor whose performance and payment obligations are guaranteed by a surety). Pl.'s Mem. in Support at 1-2.

The Construction Contract

On January 20, 2000, the Warfields and San-Gra entered into a construction contract (the "Construction Contract") that required San-Gra to perform specified work for a lump sum of $992,000.00. Construction Contract (Ex. 2 to USF & G's Exs. [Docket No. 49]) at 1-3. The scope of the work was to construct building # 5 and to perform site improvement and miscellaneous code upgrades to buildings # 2, # 3, and # 4. Id. at Article 8.1.3. The Construction Contract was signed by Les Granger (of San-Gra) and John H. Warfield. Id. at 7. The contract incorporated the General Conditions of the Contract for Construction AIA Document A201-1997 (the "General Conditions"). Id. at Article 8.1.2. These conditions state that the Contractor needs to supervise the work to his best skill and knowledge, is responsible for the acts and omissions of subcontractors, and "shall employ a competent superintendent ... who shall be in attendance at the Project site during performance of the Work." Id. at Articles 3.9.1, 3.3.1, 3.3.2.

On May 9, 2000, a change order revised the scope of work, eliminated architectural services, and changed the sum due San-Gra from $992,000 to $793,000. Change Order No. 1 (Ex. B to Pl.'s Mem. in Support).

The Performance Bond

USF & G stood surety for San-Gra pursuant to the Payment and Performance Bonds issued on January 20, 2000 in connection with the Construction Contract. The Bonds (Ex. A to Pl.'s Mem. in Support). The Performance Bond named San-Gra as principal, named the Warfields as owner and obligees, and incorporated the Construction Contract by reference. Perf. Bond (Ex. 5 to USF & G's Exs.) at 1 and ¶ 1.

The Subcontractor Contract

On April 1, 2000, San-Gra subcontracted all the work outlined in the Construction Contract (subject to change order No. 1) to John Warfield's construction company, Warfield Services, Inc. ("Services"). San-Gra's Mem. in Support at 2; Subcontractor Contract (Ex. 6 to USF & G's Exs.) at 1 and Article 8.1. Pursuant to the agreement, San-Gra was to act as general contractor providing construction management services related to the construction of the new pre-engineered building. Id. The subcontract did not provide for a minimum or fixed amount of construction management services. Rather, the construction management services were quantified at a maximum of $5000/month for 10 months. Subcontractor Contract (Ex. 6 to USF & G's Exs.). The Project architect was Jerome Dixon.

The parties do not dispute that the subcontract was a true subcontract and not an attempt by San-Gra to assign the Contract to Warfield Services. USDA's Mem. in Support at 3. The parties also do not dispute that San-Gra and the Warfields remained obligated to each other under the Construction Contract. Id.

The Construction Loan Provided by Enterprise

On April 14, 2000, the Warfields entered into a loan agreement with Enterprise. Construction Loan (Ex. 18 to San-Gra's Exs. [Docket No. 44]) at 1. They closed on a $2,280,000 USDA-guaranteed loan and a $250,000 direct loan on April 28, 2000. Id. at 1, 3.

The Collateral Assignment

On the same day that the Warfields entered into the loan agreement with Enterprise (April 14, 2000), the Warfields assigned their purported rights under the Construction Contract to Enterprise. Collateral Assignment (Ex. 9 to USF & G's Exs.). The only limitation to the assignment was that Enterprise could not exercise any of its rights until a Default occurred. Id. at ¶ 1.²

The Dual Obligee Rider

On October 25, 2000, upon San-Gra's request,³ USF & G issued a Dual Obligee Rider ("Rider") which named Enterprise as an additional obligee on the surety Bond. Rider (Ex. 10 to USF & G's Exs.).⁴ According to the President of Enterprise, Robert Catanzaro ("Catanzaro"), the issuance of the Dual Obligee Rider was a condition of closing on the Warfields' loan. Catanzaro Dep. (Ex. 3 to USF & G's Exs.) at 53.

Events Preceding the April 24, 2001 Conference

According to Enterprise, in February and March 2001, it notified San-Gra that the Project had exceeded the time line for construction and that the budget appeared inadequate. Pl.'s Mem. in Support at 3. Around this same time, the Warfields defaulted on their loan by failing to cure an equity deficiency and to make March 1 and April 1 payments. Forbearance Agreement (Ex. 16 to USF & G's Exs.) at 2. On March 28, 2001, Catanzaro, Enterprise's President, sent a letter to Granger of San-Gra detailing the estimates its construction inspector had prepared regarding Project completion. 3/28/01 Enterprise Letter (Ex. D to San-Gra's 56.1 Exs. [Docket No. 61]) at 1. Enterprise stated that only $120,000 remained on the Direct Loan and that there were unpaid subcontractors that might need to be paid from those funds. Id. Catanzaro closed the letter by stating that he "appreciate[d] [Granger's] involvement in the Project and welcome[d][his] suggestions." Id. at 2.

Eight days later, Enterprise requested a conference with USF & G and San-Gra pursuant to Paragraph 3.1 of the Performance Bond. 4/5/01 Enterprise Letter (Ex. 11 to USF & G's Exs). In that letter, Enterprise stated that "[p]ursuant to Paragraph 3.1 of the Bond, notice is hereby given that the undersigned is considering declaring a Contractor Default." Id.

On April 17, 2001, USF & G's surety claim attorney, Kim Zanotta ("Zanotta") replied by letter, identifying herself as USF & G's claim attorney and stating that she would contact San-Gra to arrange a mutual time for the conference. 4/17/01 USF & G Letter (Ex. 12 to USF & G's Exs.). That same day, San-Gra replied in writing to the earlier Enterprise letter, stating its availability to meet and requesting copies of various documents such as cancelled checks, schedules of values approved by the architect, change orders, loan documents, construction budgets, and all inspection reports. 4/17/01 San-Gra Letter (Ex. L to Pl.'s Exs.).

The April 24th Meeting

The conference took place on April 24, 2001, at the Project site. USF & G's Mem. in Support at 4. Zanotta's assistant Nancy Smiley ("Smiley") represented USF & G via telephone for approximately ten minutes. San-Gra and its counsel, Linda Alario,⁵ participated in person, along with John Warfield and Catanzaro. Id.; San-Gra's Mem. in Support at 3-4; Pl.'s Mem. in Support at 4; Catanzaro Dep. Vol 1 (Ex. 1 to USF & G's Exs.) at 112-114.

It appears that by this time, Enterprise had disbursed to the Warfields all but $120,000 of the construction loan proceeds. San-Gra's Mem. in Support; 3/28/01 Enterprise Letter (Ex. D to San-Gra's 56.1 Exs.) at 1. According to Catanzaro, however, this amount was originally allocated to a project outside the scope of San-Gra's work. Catanzaro Dep. (Ex. 15 to San-Gra's Exs.) at 112.

Enterprise brought to the meeting its estimates of the scope of work left to be completed (as of April 2001), costs to complete such work, and the remaining contract balance, but neither USF & G nor San-Gra came to the meeting with any specific information. Pl.'s Mem. in Support at 4. The President of Enterprise, Catanzaro, testified that Enterprise presented an estimate of $421,000 to complete the work. Catanzaro Dep. Vol 1 (Ex. 1 to USF & G's Exs.) at 112-114. He also testified that during the meeting, John Warfield remarked that this estimate was too high. Id. The meeting ended without any resolution as to who was going to complete the Project or whether work was going to continue on it. Id. at 114-116. Enterprise claims it suggested to Granger that San-Gra (not Warfield Services) complete the Project, but that Granger said he wanted time to review the plans and the completion analysis. Id. at 115; USF & G Mem. in Support at 5. Neither the Warfields nor Enterprise stated at that meeting that they intended to declare San-Gra in default, or intended to terminate the Contract or complete the work themselves. Catanzaro Dep. Vol. III. (Ex. 14 to USF & G's Exs.) at 33-34.

Events After the April 24, 2001 Meeting

On April 26, 2001, Zanotta sent a...