Factor King, LLC v. Secondino & Son, Inc.

Factor King, LLC v. Secondino & Son, Inc.

No. CV156055989S

Superior Court of Connecticut, Judicial District of New Haven, New Haven

May 9, 2018

UNPUBLISHED OPINION

Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Markle, Denise D., J.

MEMORANDUM OF DECISION

Markle, J.

I. BACKGROUND

This action arises from commercial transactions between the named parties and a third subcontractor. On July 16, 2015, the plaintiff/counterclaim defendant, Factor King, LLC (hereinafter referred to as Factor King), brought this action against the defendant/counterclaim plaintiff, A. Secondino &amp Son, Inc. (hereinafter referred to as Secondino), alleging breach of contract, and as an alternative, promissory estoppel arising from the assignment of accounts receivable from a third party, Intext Building Systems, LLC’s (Intext) to the defendant Factor King.^[1] In response, Secondino’s pleadings deny the substantive allegations and asserts twelve special defenses^[2] and a five-count counterclaim. Count one of Secondino’s counterclaim alleges a breach of contract; count two alleges, alternatively, a promissory estoppel claim; count three alleges negligent misrepresentation; count four alleges fraudulent misrepresentation; and count five alleges violations of the Connecticut Unfair Trade Practices Act, General Statutes § 42-110a et seq. (CUTPA). On November 19, 2015, Factor King filed a reply denying Secondino’s special defenses, and an answer denying the substantive allegations of Secondino’s counterclaim and asserting five special defenses.^[3] On November 14, 2016, Secondino filed a reply denying Factor King’s special defenses. The bench trial of this case took place on November 7, 8, 9, and 16, 2017. On the first day of trial, Factor King withdrew its breach of contract claim and proceeded only on its claim of promissory estoppel. The court ordered post-trial memoranda to be filed by February 6, 2018.

II. FACTS

After consideration of all the evidence and credible testimony presented at trial, the court finds the following facts. In 2013-2014, Secondino, a commercial construction company, was general contractor for the State of Connecticut (State) on a project to renovate and install additions to the Jenkins-Waggoner Laboratory in New Haven, Connecticut (Jenkins project). One of Secondino’s subcontractors on the Jenkins project was Intext, and on June 25, 2013, Secondino and Intext entered into a subcontractor agreement (S-I subcontractor agreement), which established the following relevant parameters. A contract sum of $586,000 would be payable in progress payments to Intext as Intext submitted applications for payment (payment applications) to Secondino. With each payment application, Intext was required to submit an affidavit waiving any right of lien that it or any other entity may have had relating to the work covered by that payment application, and verifying that all of its suppliers, subcontractors, and employees had been paid. Secondino or the State could decline to approve a payment application in whole or in part for various reasons, and 7.5 percent was deducted and withheld from each payment application until final completion of the Jenkins project. In order to obtain these withheld payments, Intext was required to, inter alia, remedy any defects, fulfill any orders of Secondino or the State, and provide an eighteen-month guarantee. Intext also remained liable to Secondino for all costs and charges arising out of Intext’s incomplete, insufficient, or unacceptable performance, and in the event that Secondino declared Intext to have defaulted, Intext would be liable for all costs of completing the work in excess of the contract sum.

In December 2013, Secondino received a letter from Dean Coelho, the owner and manager of Intext, stating that Intext had established a relationship with Factor King and instructing that all payments due to Intext should be sent to Factor King. Factor King also sent Secondino a letter, signed by Frank Skelly, the primary contact between Factor King and Secondino, which informed Secondino that Intext had assigned all of its present and future accounts receivables to Factor King, including receivables from the Jenkins project. Once Factor King began doing business with Intext, Intext submitted its payment applications to Factor King. Factor King would then send the payment applications to Secondino, along with an invoice acknowledgment form and a notice of assignment. These invoice acknowledgment forms stated: " The authorized signature below acknowledges and represents to FACTOR KING, LLC that all goods and services relating to the invoices listed above have been completed and accepted. There are no defenses, set-offs or other claims which would prevent payment in full of the invoices listed above." Ex. 4, Invoice Acknowledgement Form 02/04/14.

Secondino refused to sign the invoice acknowledgment forms. On January 7, 2014, prior to Factor King submitting any payment applications, Lucy Healey, Secondino’s Chief Financial Officer and Controller, sent an email to Robert Gross, a member of Factor King, and to Paul Willis, a project executive for Secondino and the project manager on the Jenkins project, which confirmed that Secondino would " only agree to and work under the terms of [the S-I subcontractor agreement] ..." Ex. E, Email from Healey to Gross 1/7/14. Willis also told Skelly that Secondino would not waive its rights under the S-I subcontractor agreement.

On January 28, 2014, Secondino began making progress payments directly to Factor King pursuant to payment applications, and Willis responded to each payment application by stating that it was approved subject to the State’s approval. Skelly never asked what " subject to State approval" meant, and he acknowledged that State punch lists prior to final payment are common in the construction industry, which detail the changes and corrections necessary to complete a project. Then, in the spring of 2014, Secondino was forced to make a $40,000 payment to the Connecticut Department of Labor (DOL) because one of Intext’s subcontractors failed to pay its workers prevailing wages, as required by the S-I subcontractor agreement. Factor King treated the $40,000 payment as an offset against the December 2013 payment application, even though Willis never stated that Secondino reserved the right to take an offset from that payment application.

Around this same time, Skelly became concerned with Intext’s financial status and was aware of instances involving Intext’s failure to pay suppliers.^[4] By August 2014, Factor King was aware of Intext’s payroll issues and rapidly deteriorating financial position, and that it was poised to lose a substantial sum of money through its relationship with Intext.^[5] Factor King, however, did not inform Secondino of the extent of Intext’s financial issues, and submitted certified payrolls to Secondino that omitted Intext’s failure to pay its employees in a timely fashion and inaccurately reflected information pertaining to the payment of Intext’s suppliers.^[6]

In August 2014, Willis learned that Intext had failed to pay some of its employees and notified Healey. On August 29, 2014, Robert Doll, Secondino’s project superintendent on the Jenkins project, sent an email to Intext detailing Intext’s continued lack of progress. On that same day, Willis sent an email to Skelly requesting an accounting of Skelly’s Intex account, but Skelly did not respond. Then, on September 4, 2014, a telephone conference was held involving Healey, Willis, Skelly, and Coelho. The purpose of the conference was for Secondino to discuss its concerns regarding Intext’s ability to complete the Jenkins project, to determine what was owed to Intext’s employees and suppliers, and to ascertain whether Factor King would fund Intext through completion of the Jenkins project so that Intext could avoid being placed in default by Secondino. Secondino would not make the next progress payment unless Factor King agreed to fund Intext through completion of the Jenkins project. During the conference, Factor King represented and promised that it would fund Intext through the completion of the Jenkins project.

On September 9, 2014, Factor King, by way of an email written by Skelly, memorialized its understanding of the parties’ positions following the telephone conference. Secondino then commented on each of Skelly’s statements and sent a letter to Skelly that included Skelly’s statements and Secondino’s comments, which both parties signed on September 11, 2017 (letter memorandum). The letter memorandum set forth that Secondino would only issue the $107,651.03 progress payment that was due pursuant to the S-I subcontractor agreement if Factor King would fund Intext through the completion of the Jenkins project.^[7]

At the time when Factor King represented and promised that it would fund Intext through project completion, it knew or should have known that it actually would not. Secondino relied on the representations and promises made by Factor King, which induced Secondino to send a check to Factor King for $107,651.22,^[8] and to refrain from placing Intext in default of the S-I subcontractor agreement. Thereafter, Factor King stopped funding Intext within a week of receiving the check on September 23, 2017. In an October 2, 2014 email to Coelho and Willis, Skelly explained that Factor King had advanced more than 100 percent of the full value of the S-I subcontractor agreement, and asked that Secondino try to " keep costs under control so that any remaining funds due [Intext/Factor King] can be sent to our lockbox eventually." Ex. N, Skelly email to Coelho/Willis 10/2/14.

On October 8, 2014, Secondino placed Intext in default of the S-I...