Lucent Technologies v. Mid-West Electronics

• Decision Date: 29 June 2001
• Citation: 49 S.W.3d 236
• Parties: (Mo.App. S.D. 2001) Lucent Technologies, Inc., Appellant v. Mid-West Electronics, Inc., et al., Plaintiff, Air Filtration Engineering Company Of Tucson, Inc., Respondent. WD58668 & WD58680 0
• Court: Missouri Court of Appeals

49 S.W.3d 236 (Mo.App. S.D. 2001)

Lucent Technologies, Inc., Appellant v. Mid-West Electronics, Inc., et al., Plaintiff, Air Filtration Engineering Company Of Tucson, Inc., Respondent.

Missouri Court of Appeals Western District

WD58668 & WD58680

06/29/2001

Appeal From: Circuit Court of Jackson County, Hon. Charles William Kramer

Counsel for Appellant: Teresa A. Woody and Michael C. Leitch

Counsel for Respondent: Mark S. Gunnison and Robin E. Scully, II

Opinion Summary: Air Filtration Engineering Company of Tucson, Inc. (AFECT) brought an action in quantum meruit against Lucent Technologies, Inc. to recover money damages incurred while renovating Lucent's clean room. Mid-West Electronics, Inc. agreed to purchase the Lucent facility, but insisted that Lucent certify a KC-1 clean room prior to the acquisition. Lucent recommended AFECT because it had performed work for Lucent several times prior to this project. Consequently, Mid-West contracted with AFECT, and AFECT renovated the clean room, certifying it as a KC-1 clean room. Mid-West established an escrow account in the amount of $750,000 to fund the improvement. But Mid-West breached the purchasing agreement and failed to reimburse AFECT for four invoices totaling $132,228.01. The escrow account did not contain enough funds to compensate AFECT for these final costs. AFECT sued Lucent in quantum meruit because Lucent obtained the benefit of the clean room. The trial court awarded AFECT $124,527.18, and Lucent appealed.

Lucent argued it was merely a passive beneficiary and therefore did not receive the benefit of the clean room inequitably. Lucent also argued AFECT was barred from recovery because its only remedy was a mechanic's lien, and AFECT failed to avail itself of this statutory remedy. AFECT cross-appealed, alleging it was entitled to a judgment for the remaining $7,700.83 for its work and activities associated with the improvements and also prejudgment interest from the date demand was made upon Lucent to pay the outstanding invoices.

AFFIRMED AS TO RESPONDENT, AFECT, FOR THE APPEAL. REVERSED AND REMANDED AS TO APPELLANT, AFECT, FOR ITS CROSS-APPEAL.

Division Two holds: (1) The trial court properly awarded AFECT $124,527.18 in damages for its quantum meruit action because (a) Lucent benefited from AFECT's improvement of the clean room; (b) Lucent recognized the benefit; and (c) Lucent accepted and retained the benefit of the clean room inequitably. Further, Lucent was more than a mere passive beneficiary in that it initiated the transaction between Mid-West and AFECT based on Lucent's prior relationship with AFECT.

(2) The trial court properly awarded AFECT $124,527.18 in damages for its quantum meruit action because a mechanic's lien is not an exclusive remedy for an unpaid contractor that is not in privity with the property owner, and, therefore, AFECT was not required to avail itself of a mechanic's lien.

(3) The trial court did not err in denying AFECT's award of $7,700.83 for its work and activities associated with improving the clean room at the Lucent facility because this cost was incurred due to faulty installation of leaking filters, which were removed and replaced. Lucent, therefore, did not receive the benefit of that installation project.

(4) The trial court erred in denying AFECT prejudgment interest on the $124,527.18 because the expenses were due, the amount was readily ascertainable, AFECT made a demand to Lucent to pay the amount due, and the amount due was reasonable.

Ellis and Holliger, J.J., concur.

Thomas H. Newton, Judge

I. Factual and Procedural History

Lucent Technologies, Inc. (Lucent),¹ by and through its predecessor AT&T Corporation (AT&T) and Mid-West Electronics, Inc. (Mid-West) entered into a purchase agreement on September 13, 1995, by which Mid-West agreed to purchase Kansas City Works for $45 million. Kansas City Works was a large manufacturing facility located in Lee's Summit, Missouri. Lucent also entered into a written license agreement granting Mid-West access to a portion of the property. Lucent also gave Mid-West express authorization to access a portion of the facility that is now the subject to this dispute, known as the KC-1 clean room² for the purpose of making improvements to the area and obtaining the proper certification.

Mid-West made a down payment of $250,000 as a deposit. And if on January 5, 1996, Midwest was not satisfied with the clean room, it could terminate the purchasing agreement and receive a full refund of the entire down payment. The purchasing agreement had an initial closing date thirty days after November 13, 1995, but several extensions were granted.

In order to prepare for closing, Mid-West contacted Air Filtration Engineering Company in Tucson (AFECT) to renovate the KC-1 clean room. Lucent recommended AFECT to Mid-West because Lucent had hired AFECT to do some work in the past. AFECT recommended replacing all of the filters at a cost of approximately $700,000. Mid-West accepted AFECT's bid. The work continued until January 5, 1996, when the due diligence period expired, and Mid-West was not prepared to close on the property. Again, the parties executed an extension agreement where Mid-West agreed to continue its repairs to the facility and pay the costs out of its own funds requiring a deposit in an escrow account of $750,000. Midwest entered into an escrow agreement with Old Republic Title Company (Old Republic). As the escrow agent, Old Republic would disburse the funds after a request from Midwest and final approval by Lucent. If Mid-West purchased the property, the remaining escrow funds would be returned; but if the sale did not close, Lucent would retain the deposit and the improved clean room. The contract was silent as to who was responsible for costs incurred above the $750,000 set aside in the escrow account.

The extension agreement also required Mid-West to supply copies of all third-party purchase orders or repair agreements executed by Mid-West, and further reserved Lucent the reasonable right to approve payments made out of the escrow account. Lucent approved all AFECT's transactions to improve and complete the required work to repair the KC-1 clean room via Mid-West. All but the four following invoices were paid (1) $72,277.18 for filters, installation, and repairs at the facility, invoice number 8665, request for payment made to Mid-West on June 14, 1996; (2) $52,250.00 for certification of the KC-1 facility as a Class 1 clean room, invoice number 8650, request for payment made to Mid-West July 23, 1996; and (3) and (4) $7,700.00 for repairs and services to the defective filters, invoice numbers 8739 dated August 2, 1996, and 8792 submitted September 6, 1996.

A new closing date was scheduled requiring Mid-West to either purchase the property or Lucent would obtain an improved clean room and all remaining funds in the escrow account. Leakage problems, however, caused a delay in the renovation process and more extensions were granted. AFECT hired Donaldson Company (Donaldson) to supply and repair the filters for the clean room, but during the course of installing the filters, leaks were discovered. Donaldson was responsible for 87.5% of the defective filters, which caused the leaks. AFECT attributed 12.5% fault to the installers that Mid-West hired. AFECT sent Mid-West invoices to cover the costs of the additional repairs totaling $61,606.70. Mid-West did not reimburse AFECT for any of the costs associated with the faulty filtration system. AFECT eventually reached an agreement with Donaldson, and, therefore, AFECT is only seeking damages for $7,700 of that amount to cover the 12.5% in installation costs.

After resolving the leakage problems, AFECT certified that the room was a KC-1 clean room in October 1996. A new closing date of December 13, 1996, was scheduled. Mid-West failed to close, defaulting on its agreement with Lucent. This was the final closing date, and Lucent would not agree to any more extensions. AFECT submitted the invoices for payment to Mid-West prior to this final closing date, but Lucent did not reimburse AFECT out of the remaining $12,402.00 in escrow funds.

Lucent broke off all negotiations with Mid-West and obtained the KC-1 clean room. Lucent also kept the remaining funds in the escrow account. Lucent then entered a purchasing agreement with Townsend Summit, LLC (Townsend) for the sale of Kansas City Works, including the clean room. Lucent used the certified status of the KC-1 clean room as a marketing tool to draw potential buyers. Townsend purchased the facility and acquired the clean room. Lucent advised Townsend that a dispute existed as to the ownership of the new filters, but Lucent agreed to hold Townsend harmless of all claims and damages arising from that dispute. Lucent collected $28 million from this sale, and collected $12,402 from the escrow account.

AFECT's claims include damages in quantum meruit against Lucent for receiving the benefit of the filters and the clean room, without compensating the supplier or laborer. AFECT demanded payment on September 24, 1997, but Lucent refused to pay.

A bench trial was held on the matter, and the trial court found that AFECT was entitled to $72,277.18 for filters, installation, and repairs at the facility and $52,250.00 for certification of the KC-1 facility as a Class 1 clean room for a total of $124,527.18 in damages. Lucent brought this appeal, and AFECT filed a cross-appeal.

Lucent raises three points on appeal, two of which arise out of AFECT's quantum meruit claim. The first alleges that the trial court erred in rendering judgment for AFECT because an action in quantum meruit requires proof that Lucent accepted and retained the renovated clean room under inequitable circumstances, and no such evidence was presented. Lucent, further, argues that the evidence showed that Mid-West was not Lucent's agent, Lucent created no expectation of payment, and AFECT...