RG4 Holding Co. v. Dennis Eng'g Grp., LLC

FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER

This matter is before the Court following a bench trial¹ on the complaint of Plaintiff RG4 Holding Co., LLC ("RG4") against Defendants Dennis Engineering Group, LLC and The Dennis Group, LLC (collectively, "Dennis Group"). RG4 seeks damages against Dennis Group for breach of contract and breach of fiduciary duty [ECF #33]. Dennis Group counterclaims for breach of contract [ECF #34]. Having considered the testimony of witnesses, both in-court and by way of deposition, the exhibits, and arguments of counsel, the Court issues the following Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure.²

This contractual dispute arose out of Dennis Group's alleged breaches of contract and fiduciary duty on a construction project in Florence, South Carolina. RG4, a wholly owned

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subsidiary of Ruiz Food Products, Inc., acquired the property in Florence in 2014 and planned to modify and improve the existing facility in order to manufacture and distribute frozen Mexican food products. RG4 hired Dennis Group, an engineering company specializing in design-build engineering and construction management for commercial food facilities, to perform the necessary work for the facility to meet RG4's needs.

Dennis Group's participation in the project began in April 2015 and the project was completed in June 2016. Subsequently, RG4 brought this lawsuit against Dennis Group alleging breach of contract and breach of fiduciary duty, asserting, inter alia, Dennis Group failed to maintain an adequate system of cost controls, performed work outside of the scope defined in the contract without the proper authority from RG4, and falsified invoices to hide unauthorized work. Dennis Group has counterclaimed for breach of contract, alleging they fulfilled all of their contractual obligations and RG4 failed to pay the final outstanding invoices in the amount of $182,256.52 plus interest.

RG4 removed this action from the Florence County Court of Common Pleas on December 2, 2016. On June 23, 2017, RG4 filed an amended complaint alleging causes of action against Dennis Group for breach of contract and breach of fiduciary duty. On June 29, 2017, Dennis Group filed an answer to the amended complaint and asserted counterclaims against RG4 for breach of contract and violation of the South Carolina Unfair Trade Practices Act, S.C. Code. § 39-5-10. On March 20, 2018, RG4 moved for partial summary judgment on Dennis Group's South Carolina Unfair Trade Practices Act claim. On July 9, 2018, the Court granted RG4's motion for partial summary judgment.

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The Parties

1. Plaintiff RG4 Holding Co., LLC is a limited liability company organized and existing under the laws of the State of South Carolina with its principal place of business in Dinuba, California.

2. RG4's managing member is nonparty Ruiz Food Products, Inc. ("Ruiz").³

3. Defendant Dennis Engineering Group, LLC is a Delaware limited liability company with its principal place of business in Springfield, Massachusetts. Defendant The Dennis Group, LLC is not a legal entity, but The Dennis Engineering Group, LLC at times does business as The Dennis Group. The Court will use the term "Dennis Group" to encompass The Dennis Engineering Group, LLC, and any other affiliated entity operating under the names The Dennis Group, LLC or The Dennis Group. The Dennis Group has specialized in providing design-build services and project engineering to the food industry since its inception. [See also Hipenbecker Dep. at 338].

Relevant Individuals

4. David Hipenbecker was the Director of Engineering for Ruiz⁴ and was intimately involved in all aspects of this project until his employment with Ruiz was terminated in

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February 2016. He was the project representative for RG4 tasked with, among other things, overseeing the day-to-day management of the construction project in Florence, South Carolina on behalf of Ruiz. Hipenbecker has worked on hundreds of projects involving food processing facilities over his 40-year career in the industry. [Hipenbecker Dep. at 338]. Hipenbecker reported to Brian Miller, and he was never told to report to anyone other than Brian Miller. [Id. at 350]. Hipenbecker was open in his communications with Miller and attempted to keep Miller informed throughout the Project. [Id. at 33].

5. Brian Miller was the Senior Vice President of Supply Chain at Ruiz during the relevant time period when the events occurred giving rise to this litigation. Miller joined Ruiz in 2001 and remained with the company until he resigned in June 2019. Miller was part of the senior leadership at Ruiz. He was Hipenbecker's immediate superior and supervised the project in Florence, South Carolina. Miller approved each invoice submitted by Dennis Group that was paid by Ruiz.

6. David Auchterlonie was Executive Vice President of Ruiz in charge of Mergers and Acquisitions and Chief Financial Officer ("CFO") during the relevant time period when the events occurred giving rise to this litigation. Auchterlonie retired in January 2017. When Auchterlonie retired, he became a member of Ruiz's Board of Directors in January 2017 and he remains on the Board of Directors today.

7. Rachel Cullen is the Chief Executive Officer ("CEO") of Ruiz and was the CEO at all times relevant to this litigation.

8. Tony Caetano is the Senior Vice President of Administration at Ruiz and oversaw all human resources responsibilities at Ruiz at all times relevant to this litigation.

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9. Alex Tangonan is a Project Manager and Project Engineer for Ruiz. Tangonan spent a significant amount of time on site during the construction project in Florence and worked with Hipenbecker and Dennis Group throughout the life of the project.

10. Joshua Tripp is a Project Manager for Dennis Group and has been with the Dennis Group since 2003. Tripp was responsible for managing all Dennis Group employees and subcontractors that worked on the RG4 facility in Florence, South Carolina. Tripp also oversaw the subcontractor bidding process and worked closely with Hipenbecker on the overall management and budgeting of the Project.

11. Jeffrey Lewandoski is a Senior Project Manager for the Dennis Group and has been with Dennis Group since 1997. Lewandoski was Tripp's superior and assisted Tripp by communicating with Brian Miller at RG4 to ensure the facility in Florence, South Carolina was finished on time and according to RG4's specifications.

12. Tom Dennis is the Chief Executive Officer and founder of the Dennis Group, which he started in 1987. Dennis was the primary negotiator on behalf of Dennis Group for the agreement and the supplemental agreements, as more specifically described below.

The Project

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13. Negotiations for the project began on April 8, 2015, when David Hipenbecker⁵, Ruiz's Director of Engineering at the time, contacted Joshua Tripp⁶, a project manager with Dennis Group, to inquire about the possibility of Dennis Group retrofitting and building out the facility in Florence. [JTE 1].⁷

14. On May 7, 2015, Tom Dennis, President of Dennis Group, told Tripp he had spoken with Hipenbecker⁸ and Hipenbecker was meeting with Miller, Auchterlonie, and Cullen at Ruiz the following day. Hipenbecker told Dennis he was going to propose Ruiz use Dennis Group as their "exclusive Engineering Service Provider" and Dennis agreed to cut Dennis Group's administrative fee from the standard 7.5% to 3.75% in consideration for Ruiz's continued business. [JTE 2]. Hipenbecker played an important role in the negotiation of the contract, and he helped RG4 receive the fee reduction from Dennis Group during the negotiation process. [Hipenbecker Dep. at 73]. Hipenbecker stated his goal was to get the best rate possible for his employer, Ruiz Foods. [Hipenbecker Dep. at 341].

15. On June 4, 2015, RG4 sent Dennis Group a Request for Quotation (RFQ) "for the production area at Florence." [JTE 4].

16. For the remainder of June 2015, RG4 and Dennis Group negotiated the terms of the contract for the Florence project. One important aspect of the negotiations was the

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allocation of risk between the parties and the cost of bearing such risk. As part of these negotiations, Tom Dennis sent Hipenbecker a project risk matrix that delineated four ways Dennis Group could deliver the project: (1) as a design-build project with Dennis Group "not at risk," where design and construction companies are separate entities and Dennis Group is "merely an agent of the Owner neither designing nor constructing the project;" (2) as a design-build project with Dennis Group "at low risk," where Dennis Group would "hold contracts, provide construction leadership, contract management...but is not financially responsible for subcontractor performance (reimbursable);" (3) design-build with Dennis Group "at risk" where Dennis Group "holds contracts and as well progressively guarantees aspects of the project delivery with the increased scope and attendant increase risks [including subcontractor performance risk] leading to increased compensation;" and (4) as a design-bid-build project where "the responsible design and construction entities are not the same company" and "ideally, all design work must be completed before solicitation of the construction contract." [JTE 5, 6].

17. On July 1, 2015, RG4 and Dennis Group entered into an "Agreement for Engineering and Construction Management Services" ("the Agreement")⁹. [JTE 813].

18. The parties agreed on the third project delivery option set forth above, with Dennis Group "at risk" by contracting and assuming responsibility for guaranteeing

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aspects of the project delivery including subcontractor