Hard Surfaces Solutions, LLC v. Constr. Mgmt., Inc.
| Decision Date | 21 June 2021 |
| Docket Number | No. 3:21-cv-00137,3:21-cv-00137 |
| Citation | 544 F.Supp.3d 825 |
| Parties | HARD SURFACES SOLUTIONS, LLC, Plaintiff, v. CONSTRUCTION MANAGEMENT, INC., and William Coulson, individually, Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
Christopher B. Holleman, J. Brad Scarbrough, BuildLaw, PLC, Nashville, TN, for Plaintiff.
J. Ross Pepper, Jr., Lara E. Ford, Matthew E. Pulle, Pepper Law, PLC, Nashville, TN, for Defendants.
Defendants' Motion to Dismiss (Doc. No. 14) challenging the validity of Plaintiff's claims for breach of contract, violation of Tennessee's Prompt Pay Act, the Tennessee Consumer Protection Act, and misrepresentation/fraud has led to 65 pages of briefing. Plaintiff has also filed a Motion to File a Sur-Reply (Doc. No. 30) that would add another 5 pages, to which Defendants have filed a response in opposition (Doc. No. 31). The sheer length and extent of the briefing indicates that the majority of issues are not as clear-cut as Defendants would have it. And because–with the exception of the claims sounding in fraud–Defendants' arguments are better addressed in the context of summary judgment after the record has been developed, the Court finds it unnecessary to dive too deeply into the parties' arguments at this time.
Briefly, the Complaint alleges the following. William Coulson is president of Construction Management Inc. ("CMI"). In August 2016, CMI entered into a cost-plus construction contract with Mt. Juliet Hospitality, LLC (the "Project Owner") whereby CMI would serve as the prime contractor for the construction of a 100-unit Staybridge Suites Hotel. Thereafter, on September 22, 2017, CMI entered into a written subcontract agreement (the "Subcontract") with Hard Surfaces Solutions, LLC ("Hard Surfaces") to install vanity tops, window sills, counterstops, tub and shower surrounds and accessories, and shower door enclosures in the hotel. The Subcontract was modified over time, raising the cost of work performed by Hard Surfaces from $105,969 to $150,054.
Hard Surfaces claims to have performed its obligations under the Subcontract and submitted six pay applications to CMI. For the first four pay applications, CMI withheld a percentage as retainage, but did not place those retained funds into a separate, interest-bearing escrow account. Further, CMI did not pay the last two pay applications submitted by Hard Surfaces. Hard Surfaces claims it is owed $42,152.57 for labor and goods. It also seeks statutory penalties in the amount of $300 per day under the Prompt Pay Act that, according to Plaintiff, is already north of $300,000.
Defendants argue that Plaintiff's breach of contract and Prompt Pay Act claims fail as a matter of law because of the Subcontract's pay-when-paid clause. In relevant part, that clause provides:
It is an express condition precedent to payment by Contractor to Subcontractor that Contractor receive payment for Subcontractor's work as due from Owner; and Contractor shall not be required to make payments to Subcontractor as called for herein until the actual receipt of payment from Owner, and then only to the extent of such payment. The Subcontractor expressly contemplates that payments to him are contingent upon the Contractor's [sic] receiving payment from the Owner, the Subcontractor expressly agreeing to accept the risk that he will not be paid for work performed by him [in] the event that the Contractor, for whatever reason, is not paid by the Owner for such work.
(Doc. No. 14-3, Hard Surfaces Contract ¶ 6.2). Because Plaintiff voluntarily accepted the risk of a no-pay, or slow-play, Defendants insist dismissal of Counts I and II of the Complaint is required.
It is true, as Defendants point out, that a " ‘court will not create or rewrite a contract simply because its terms are too harsh or because one of the parties was unwise in agreeing to them.’ " Snyder v. First Tennessee Bank, N.A., 450 S.W.3d 515, 518 (Tenn. Ct. App. 2014) (quoting Towe Iron Works, Inc. v. Towe, 243 S.W.3d 562, 569 (Tenn. Ct. App. 2007) ). But this "often-cited principle" of Tennessee law comes with a caveat – "the absence of mistake or fraud." Id. It is also hornbook law in Tennessee that "there is implied in every contract of good faith in its performance and enforcement, and a person is presumed to know the law." Dick Broad. Co. of Tennessee v. Oak Ridge FM, Inc., 395 S.W.3d 653, 660 (Tenn. 2013) (citation omitted).
Plaintiff alleges that it fully performed all of its obligations under the Subcontract in a workmanlike manner, and that it properly billed for that work, but has not been paid in full. While Defendants claim that it has not made those payments because it has not been paid for Hard Surfaces' work by the Project Owner, whether that is true or not cannot be determined from the face of the Complaint.1
Regardless, the essence of Plaintiff's claim is that, if Defendants were not paid by the Project Owner, this was because CMI intentionally and fraudulently altered its Tennessee contractor's licence by holding itself out to be a licensed general contractor with an unlimited license in Tennessee. (Complaint ¶ 2.) According to the allegations in the Complaint, during the time frame covered by this litigation, CMI was issued a special hardship license by the Tennessee Department of Commerce with a monetary limit of only $284,200. Nevertheless, "CMI and Coulson and/or their principals and agents and/or someone acting under their authority and/or power, fraudulently altered the monetary limit on CMI's license #68836 from a limitation of $284,200.00 to an ‘unlimited’ monetary amount license in order to illegally pull permits for hotel projects across the State of Tennessee[.]" (Id. ¶ 24). Plaintiff's theory, which the Court cannot say is implausible for purposes of Rule 12(b)(6), is that if Defendants were not paid by the Project Owner, this was the result of their own machination, and Plaintiff should not be held to account for Defendants' wrongdoing. See German v. Ford, 300 S.W.3d 692, 706 (Tenn. Ct. App. 2009) (); Moody Realty Co. v. Huestis, 237 S.W.3d 666, 678 (Tenn. Ct. App. 2007) ().
Contrary to Defendants' contention, this case is not "similar" to Jones Masonry, Inc. v. West American, 768 S.W.2d 686 (Tenn. Ct. App. 1988) or Davis Constr., Inc. v. Lauren Enginrs. & Constrs., Inc., No. E2017-00844-COA-R3-CV, 2019 WL 1300935 (Tenn. Ct. App. March 20, 2019), either procedurally or substantively. Procedurally, Jones was decided in the context of summary judgment while Davis was decided after a bench trial, not on a motion to dismiss. Substantively, neither involved the claim that the prime contractor's alleged fraud led to the withholding of payment by the project owner.
Defendants raise an additional ground for dismissal of the Prompt Pay Act claim. The statute (which has since been amended) provided that "[w]henever, in any contract for the improvement of real property, a certain amount or percentage of the contract price is retained, that retained amount must be deposited in a separate, interest-bearing, escrow account with a third party which must be established upon the withholding of any retainage." Tenn. Code Ann. § 66-34-104(a) (2017). The statute also provided that the failure to properly escrow retained funds could result in a $300 a day penalty, and that attorney's fees could be awarded for the bad faith failure to comply with the terms of the statute.
Defendants insist that they are not liable because both the Prime Contract and the Subcontract indicate that the Owner, not CMI, was the party responsible for withholding retainage. That is, "the plain language of both the Subcontract and Prime Contract shows that CMI was never a party that was to withhold retainage owed to Hard Surfaces." (Doc. No. 14-1 at 10). Maybe so, but the allegations in the Complaint assert that CMI did withhold retainage. In fact, the Complaint specifically alleges that "CMI withheld $7,647.97 as Retainage from Hard Surfaces, with the first portion of the Retainage amount beginning withheld on or about July 13, 2018." (Complaint ¶ 33). Whether that is correct only discovery will show, but for now the Court must accept the allegations as true.
Neither the breach of contract claim set forth in Count I, nor the Prompt Pay Act claim set forth in Count II will be dismissed on the pleadings.
Defendants argue that Plaintiff's common law fraud/misrepresentation and TCPA claims must be dismissed for failure to meet the pleading requirements of Rule 9 of the Federal Rules of Civil Procedure, and because Plaintiffs cannot show proximate cause for the damages it allegedly suffered. They also argue that Plaintiff's TCPA claim is untimely. Because this Court agrees with the first argument, it need not reach the other two.
Rule 9 requires that "in alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake," although "[m]alice, intent, knowledge, and other conditions of a person's state of mind may be alleged generally." Fed. Rule Civ. P. 9(b). However, " Rule 9(b) is not to be read in isolation, but is to be interpreted in conjunction with Federal Rule of Civil Procedure 8," which requires only "a short and plain statement of the claim" made by "simple, concise, and direct allegations." United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 503 (6th...
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