State Constr. Corp. v. Slone Assocs., Inc.

385 F.Supp.3d 449

STATE CONSTRUCTION CORP., Plaintiff,

v.SLONE ASSOCIATES, INC. et al., Defendants.

Case No.: PWG-18-00464

United States District Court, D. Maryland, Southern Division.

Signed April 22, 2019

Herman Martin Braude, Braude Law Group, P.C., Rockville, MD, for Plaintiff.

Brian S. Wood, Alexander Gorelik, Jacob William Scott, Smith Currie & Hancock LLP, Washington, DC, for Defendants Slone Associates, Inc., U.S. Specialty Insurance Company.

Lucas Farinato Webster, Kevin B. Mattingly, Huddles Jones Sorteberg and Dachille PC, Columbia, MD, Frank J. Emig, Law Office of Frank J. Emig, Laurel, MD, for Defendant Two Rivers Site Development, Inc.

MEMORANDUM OPINION

Paul W. Grimm, United States District Judge

State Construction Corp. ("State Construction") has brought this federal lawsuit seeking compensation for labor, materials, and services it provided in the course of a protracted construction project on a military facility in Maryland. It accuses Defendants, including the project's prime contractor, of scheming to deny it the protections accorded under the Miller Act, a law that shields certain classes of subcontractors and suppliers on federally funded construction sites from the risk they will not be paid for their work. Defendants argue this Court lacks jurisdiction over the suit and that, even if jurisdiction does exist, the Amended Complaint fails to state a claim upon which relief may be granted.

I agree with Defendants that, under the express terms of State Construction's subcontract, the company is a "third-tier" subcontractor without standing to bring suit under the Miller Act. I find, though, that the Amended Complaint adequately pleads a claim that the prime contractor breached an implied-in-fact contract to pay State Construction for costs associated with delays on the project and that this claim supplies a basis for federal jurisdiction. I also conclude that Defendants are not entitled to a dismissal of State Construction's Miller Act bond claim, nor of its claims for breach of the implied-in-fact contract and unjust enrichment. I also am permitting the fraud claim against the prime contractor to proceed but am ordering State Construction to further amend its complaint to indicate precisely where the alleged misrepresentations were made and whether they were oral or in writing. The fraud claim against the putative first-tier subcontractor will, however, be dismissed.

FACTUAL BACKGROUND

This case involves five companies, all of which were involved, to varying extents, in a federally funded construction project at Fort Meade, a military installation in Anne Arundel County, Maryland.¹ The differing roles each of these companies played in the project is critical to the resolution of the matter before me, and so, for the reader's sake, I will pause a moment to introduce them.

I start with the defendants. Slone Associates, Inc. ("Slone") was the prime contractor on the project. Am. Compl. ¶ 11, ECF No. 29. U.S. Specialty Insurance Co. ("U.S. Specialty") was the surety that provided the payment bond required under the Miller Act to protect the subcontractor and a limited class of construction companies and labor and material suppliers involved in the project. Id. ¶ 12; see 40 U.S.C. § 3131(b)(2) (requiring the prime contractor on certain federal construction projects to furnish a payment bond "for the protection of all persons supplying labor and material in carrying out the work provided for in the contract"). C & S Aircraft Service, Inc. ("C & S Aircraft"), based in Georgia, was the putative subcontractor (though, as will soon be made clear, the Amended Complaint alleges its only true function was to shield Slone and U.S. Specialty from Miller Act claims like the ones asserted here). See id. ¶ 3. Two Rivers Site Development ("Two Rivers") was the putative second-tier subcontractor (or sub-subcontractor). Id. ¶ 23. And, at the end of this chain, there is the Plaintiff, State Construction, which at one time identified itself as a third-tier subcontractor but here seeks to reclassify itself as either a second-tier subcontractor or, under an alternative legal theory, a subcontractor. See id. ¶ 25.

The Federal Highway Administration, an agency within the U.S. Department of Transportation, awarded the prime contract to Slone on May 9, 2013, for a price of just under $ 8.1 million. Id. ¶ 11. The agreement called for Slone to design and build an "access control point" at the entrance to Fort Meade. Id. ¶¶ 10-11. Slone furnished the required Miller Act payment bond on May 13, 2013, with U.S. Specialty serving as surety. See id. ¶ 15.

Slone soon entered into a subcontract with C & S Aircraft, under which the latter company would "perform erosion control, clearing/site demolition, earthwork, surveying and layout, and maintenance of traffic work." Id. ¶ 16. The contract price was $ 992,473.29. See id. In its Amended Complaint, State Construction asserts it is "unaware of what line of business C & S engages in, although the name suggests ‘aircraft services.’ " Id. ¶ 3. The sole shareholders, it states, "are Charles Adon Clark and his wife, and according to the internet, it has one employee and had $ 5,000 annual income before entering into the purported Subcontract Agreement with Slone" on July 15, 2015. Id. Under these circumstances, it is hardly surprising that State Construction views the bona fides of the Sloane-C & S "subcontract" with considerable skepticism.

C & S Aircraft and Two Rivers entered into a sub-subcontract agreement one week later, on July 21, 2015. Id. ¶ 23. This agreement delegated to Two Rivers the entirety of C & S Aircraft's performance obligations under the July 15, 2015 subcontract, further strengthening State Construction's suspicions. See id.

As the summer progressed, Slone and Two Rivers forged ahead with negotiations on an agreement with State Construction (the plaintiff in this case) for "storm drainage, water and sanitary sewer utility work." Id. ¶ 18. C & S Aircraft did not participate in the negotiations. Id. The talks culminated on September 24, 2015, when State Construction and Two Rivers entered into a written agreement. Id. ¶ 24. The deal, worth $ 670,000, called for State Construction to install the underground water, storm, and sewer utilities for the project.² See id. ; State-Two Rivers Agreement 12, ECF No. 34-7.

The September 24, 2015 contract was later supplemented by a "Joint Check Agreement," which authorized Slone to pay C & S Aircraft, Two Rivers, and State Construction "by check made jointly" to those three companies.³ State-Two Rivers Agreement 17; see Am. Compl. ¶ 25. This agreement, signed by representatives of all four parties (including C & S Aircraft), listed Slone as the project's "general contractor," C & S Aircraft as the "first tier subcontractor," Two Rivers as the "second tier subcontractor," and State Construction as the "third tier subcontractor." State-Two Rivers Agreement 17; see Am. Compl. ¶ 25.

State Construction's responsibilities under the September 24, 2015 contract fell outside of the scope of work that Slone had outlined in its July 2015 subcontract with C & S Aircraft. That changed, though, on November 2, 2015, when Slone issued a change order awarding C & S Aircraft an additional $ 728,079.25 "to perform the underground storm drainage, water, and sanitary sewer work for the Project, the same scope of underground utility work to be performed by State [Construction]." Am. Compl. ¶ 17. That same month, C & S Aircraft issued an "identical" change order adding these duties to Two Rivers's scope of work. Id. ¶ 18.

A similar sequence of events soon followed, when another change order expanded State Construction's scope of work to include "some miscellaneous curb and gutter work." Id. ¶ 24. The change order, dated December 2, 2015, entitled State Construction to $ 22,000 for this work. Id. One month later, Slone issued a change order inserting this same curb and gutter work, among other "miscellaneous paving work," into its subcontract with C & S Aircraft for the added sum of $ 33,808.34. Id. ¶ 19.

As the work proceeded, State Construction personnel never saw anyone from C & S Aircraft on the jobsite. See id. ¶ 21. No one from C & S Aircraft ever attended any project meetings. Id. And daily reports prepared by Slone or Two Rivers made no mention of C & S Aircraft workers. Id. The company's "only known activity," according to the Amended Complaint, "was to sign checks written by Slone [in return] for a nominal fee." Id.

State Construction began to experience delays on site as early as the fall and winter of 2015. See id. ¶ 28. Though the company had expected to complete its work by April 2016, poor coordination and other failures it attributes to Slone and Two Rivers left it unable to complete more than 20 percent of its work by that time. See id. ¶ 30. To ensure that State Construction would "keep its major equipment and manpower on site," Slone Vice President William Slone and two State Construction executives "entered into an agreement ... on or about April 1, 2016, for Slone to be directly responsible for the additional costs stemming from the delays and impacts in performing and completing the remaining eighty percent of the underground utility work." Id. ¶ 32. The Amended Complaint characterizes this agreement as an "implied-in-fact agreement," saying it was "based upon conversations and conduct." Id. ¶¶ 32-33.

With this agreement in place, Slone "resumed" making interim progress payments for State Construction's work during the spring and summer of 2016. Id. ¶ 33. State Construction kept its excavation equipment and personnel on site, but the progress payments ceased. See id. At some point (the Amended Complaint is unclear on when), State Construction President Joaquim Mendez reached out to Slone VP William Slone to seek overdue payments. See id. ¶ 39. William Slone told him to seek payment from Two Rivers. See id. Subsequent communication with Two...