W&W Steel, LLC v. BSC Steel, Inc. et al

Filing 89

MEMORANDUM AND ORDER granting in part and denying in part 69 Motion to Dismiss by counterclaim defendant W&W Steel, LLC and third-party defendant Liberty Mutual Insurance Company. The following counts of BSC Steel, LLC's second amended coun terclaim and third-party complaint are hereby dismissed for failure to state a claim upon which relief can be granted: Count II, Count VIII, Count IX and Count XI. The Motion to Dismiss 66 is granted in part and denied in part. The following count of BSC Steel, LLC's third-party complaint is hereby dismissed for failure to state a claim upon which relief can be granted: Count VIII, Count IX and Count XI. Signed by District Judge Julie A. Robinson on 5/9/2013. (ms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
________________________________________
W&W STEEL, LLC,

)
)
Plaintiff/Counterclaim Defendant, )
)
v.
)
)
BSC STEEL, INC.,
)
)
Defendant/Counterclaim Plaintiff/ )
Third-Party Plaintiff,
)
)
and
)
)
JAY D. PATEL,
)
)
Defendant,
)
)
v.
)
)
MARCUS SALAZAR, d/b/a MATERIALS
)
MANAGEMENT, INC. d/b/a MMI;
)
MORTGAGE MANAGEMENT, INC. d/b/a
)
MARTIALS MANAGEMENT, INC. a/k/a
)
MMI; and LIBERTY MUTUAL INSURANCE
)
COMPANY,
)
)
Third-Party Defendants.
)
______

Case No. 11-2613-RDR

MEMORANDUM AND ORDER
This action is presently before the court upon the following
motions: third-party defendant Materials Management, Inc.=s motion
to

dismiss

BSC

Steel,

Inc.=s

third-party

complaint;

and

(2)

plaintiff/counterclaim defendant W&W Steel, LLC and third-party
defendant Liberty Mutual Insurance Company=s motion to dismiss BSC
Steel, LLC=s second amended counterclaim Counts I, II, IV, V, VI, VII,
VIII, IX, X and XI.

Having carefully reviewed the arguments of the

parties, the court is now prepared to rule.

I.
This case arises out of the construction of the Irwin Army
Community Hospital located on Fort Riley, Kansas.

Balfour-Walton

Joint Venture (BWJV) served as the general contractor on the project.
BWJV subcontracted a portion of the work to W & W Steel, LLC.

W&W

agreed to perform the steel erection of the general contract work
on the project.

W&W then subcontracted some of its work to Materials

Management, Inc. (MMI).

MMI then entered into a contract with BSC

Steel, LLC for the steel erection.

Liberty Mutual Insurance Company

issued a payment bond in connection with the subcontract between
Balfour-Walton and W&W.
W&W filed its complaint in this case on November 8, 2011 against
BSC and Jay Patel.
2012.

BSC and Patel filed its answer on January 13,

Along with its answer, BSC also filed a counterclaim against

W&W and third-party claims against Marcus Salazar, MMI and Liberty
Mutual.

W&W and Liberty Mutual filed a motion to dismiss on February

24, 2012.

Salazar and MMI each filed a motion to dismiss on March

30, 2012.

MMI also filed its answer on March 30, 2012.

On April

6, 2012, BSC sought to amend its counterclaims and third-party
complaint.

On May 18, 2012, Magistrate Judge Sebelius granted in

part and denied in part BSC=s motion to amend.

BSC eventually filed

an amended answer with amended counterclaims and amended third-party
complaint on June 12, 2012.

MMI, W&W and Liberty Mutual filed the

instant motions to dismiss on June 26, 2012.
2

On December 17, 2012,

the court denied the earlier motions to dismiss filed by MMI, W&W
and Liberty Mutual.

In that order, the court noted that it would

consider the arguments raised by MMI in that motion on Counts I, VIII
and IX in determining MMI=s later filed motion to dismiss.
II.
The amended counterclaims and amended third-party complaint
filed by BSC contain eleven counts.

The eleven counts are as

follows: (I) Alter EgoB-counterclaim against W&W and a third-party
claim

against

MMI;

(II)

BeneficiaryB-counterclaim
ContractB-third-party

Breach
against

claim

of

Contract
W&W;

against

as

(III)

MMI;

(IV)

Third-Party
Breach

of

Negligent

MisrepresentationB-counterclaim against W&W and third-party claim
against MMI; (V) Quantum Meruit/Unjust EnrichmentB-counterclaim
against W&W; (VI) Promissory EstoppelB-counterclaim against W&W;
(VII) Suit on BondB-third-party claim against Liberty Mutual; (VIII)
Kansas Fairness in Public Construction Contract ActB-counterclaim
against W&W and third-party claims against MMI and Liberty Mutual;
(IX) Federal Prompt Payment ActB-counterclaim against W&W and
third-party claims against MMI and Liberty Mutual; (X) Fraudulent
MisrepresentationB-counterclaim

against

W&W;

and

(XI)

Kansas

Fairness in Private Construction Contract ActB-counterclaim against
W&W and third-party claims against MMI and Liberty Mutual.
In its motion to dismiss, MMI contends that Counts IV and XI
3

of BSC=s amended third-party complaint should be dismissed for failure
to state a claim upon which relief can be granted.

MMI further argues

that Counts I, VIII and IX of BSC=s original complaint should also
be dismissed for failure to state a claim upon which relief can be
granted.
W&W and Liberty Mutual seek to dismiss most of the claims
asserted by BSC.

They contend that Counts I, II, IV, V, VI, VII,

VIII, IX, X and XI fail to state claims upon which relief can be
granted.

W&W and Liberty Mutual raise essentially the same

arguments as those asserted by MMI concerning Counts I, IV, VIII,
IX and XI.

The court will address those arguments with the

contentions asserted by MMI.

W&W and Liberty Mutual contend that

BSC=s claim of quantum meruit and unjust enrichment in Count V must
be dismissed because BSC has failed to allege that it expected to
get paid by W&W.

W&W and Liberty Mutual further contend that BSC=s

claim of promissory estoppel in Count VI must be dismissed because
the oral promises alleged do not constitute a valid and enforceable
contract.

Liberty Mutual then argues BSC=s claim based upon the

payment bond in Count VII must be dismissed because BSC has failed
to state a claim against W&W.

Thus, since none of the claims in the

second amended counterclaims state a claim against W&W, then BSC
cannot assert a claim of derivative liability against it.

Lastly,

W&W and Liberty Mutual contend that BSC=s claim of fraudulent
4

misrepresentations in Count X must be dismissed because BSC has
failed to meet the pleading requirements of Fed.R.Civ.P. 9(b).
III.
The court will dismiss a cause of action for failure to state
a claim only when the factual allegations fail to Astate a claim to
relief that is plausible on its face,@ Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2007), or when an issue of law is dispositive.
Neitzke v. Williams, 490 U.S. 319, 326 (1989).

The complaint need

not

but

contain

detailed

factual

allegations,

a

plaintiff=s

obligation to provide the grounds of entitlement to relief requires
more than labels and conclusions; a formulaic recitation of the
elements of a cause of action will not do.
at 555.

Bell Atlantic, 550 U.S.

The court must accept the facts alleged in the complaint

as true, even if doubtful in fact, id. at 556, and view all reasonable
inferences from those facts in favor of the plaintiff, Tal v. Hogan,
453 F.3d 1244, 1252 (10th Cir. 2006). Viewed as such, the A[f]actual
allegations must be enough to raise a right to relief above the
speculative level.@
omitted).

Bell Atlantic, 550 U.S. at 555 (citations

The issue in resolving a motion such as this is Anot

whether [the] plaintiff will ultimately prevail, but whether the
claimant is entitled to offer evidence to support the claims.@
Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002) (quoting
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
5

IV.
A. Count I
In Count I of its second amended counterclaims against W&W, BSC
alleges that W&W is the alter ego of MMI with regard to the contract
that BSC entered into with MMI.

Therefore, BSC asserts that (1) the

MMI corporate form should be disregarded; (2) the MMI-BSC subcontract
should be disregarded and collapsed into the W&W-MMI contract; and
(3) BSC should be deemed the subcontractor of that W&W-MMI contract.
MMI contends that BSC has failed to allege sufficient facts that
would support the legal conclusion that MMI is the alter ego of W&W.
MMI argues that BSC has failed to allege facts showing that MMI and
W&W were functioning as Aa single entity.@

Specifically, MMI points

out that BSC has not alleged that MMI shares officers, office space,
or other resources with W&W.

They further note that BSC has not

alleged any of the traditional indica of alter ego status such as
common ownership, common control, financial dependence, undercapitalization, shared payment of losses, salaries and expenses, the
absence of an independent business existence, and the absence of
independently owned assets.
W&W argues that BSC has failed to allege the necessary factors
for the application of the alter ego theory.

W&W suggests that close

project oversight by W&W of BSC and MMI does not suffice to trigger
the alter ego doctrine so that a party=s corporate form can be
6

disregarded.

W&W also contends that BSC has failed to alleged that

it suffered any specific harm or injustice from the alleged
domination of MMI by W&W.
BSC contends that facts alleged in the complaint are sufficient
for the court to find that it is plausible that MMI is the alter ego
of W&W.

BSC points to the following alleged facts:

(1) MMI is not

a corporate entity but rather a trade name under which Marcus Salazar
and/or Mortgage Management, Inc. does business; (2) MMI was an
undercapitalized entity that W&W used and controlled to enter into
a subcontract with BSC; (3) MMI did not have sufficient funds or
resources to carry out the terms of the MMI-BSC subcontract; (4) W&W
performed all of MMI=s responsibilities under the subcontract
including negotiating with BSC on the scope or price of the work,
scheduling and managing BSC=s work, discussing with BSC the design
deficiencies or others, receiving and reviewing BSC=s daily logs and
reports, reviewing and submitting BSC=s pay applications to BWJV,
paying BSC directly, and communicating with BWJV regarding all
aspects of the steel fabrication and erection at the project.

BSC

suggests that W&W used MMI as a facade for W&W=s operations because
it needed the services of a company that could be reported as a
minority-owned business.

BSC suggests that MMI was used by W&W to

promote injustice and fraud upon it, suggesting that W&W now seeks
to use the MMI-BSC subcontract as a sword for recovery from BSC while
7

simultaneously using the MMI-BSC subcontract as shield to insulate
W&W from BSC=s claim for payment it is owed.

BSC argues that the key

factor is the level of control evidenced by the actual relationship
of the parties and the mere existence or nonexistence of formal stock
ownership is not necessarily conclusive.
The concept that one corporation can be found to be the alter
ego of another corporation is well-settled in Kansas law:
The fiction of separate corporate identities of two
corporations will not be extended to permit one of the
corporations to evade its just obligations; to promote
fraud, illegality, or injustice; or to defend crime. Under
circumstances where the corporate entity is disregarded,
the parent corporation may be held liable for the acts of
the subsidiary.... The courts will disregard the fiction
of a separate legal entity when there is such domination
of finances, policy, and practices that the controlled
corporation has no separate mind, will, or existence of
its own and is but a business conduit for its principal.
Dean Operations, Inc. v. One Seventy Assocs., 257 Kan. 676, 896 P.2d
1012, 1016 (1995).
In determining alter ego status, ten factors have identified
as useful guidelines:
(1) whether the parent corporation owns all or a majority
of the capital stock of the subsidiary; (2) whether the
corporations have common directors or officers; (3)
whether the parent corporation finances the subsidiary;
(4) whether the parent corporation subscribed to all of
the capital stock of the subsidiary or otherwise causes
its incorporation; (5) whether the subsidiary has grossly
inadequate capital; (6) whether the parent corporation
pays the salaries or expenses or losses of the subsidiary;
(7) whether the subsidiary has substantially no business
except with the parent corporation, or no assets except
8

those conveyed to it by the parent corporation; (8) whether
in the papers of the parent corporation, and in the
statements of its officers, the subsidiary is referred to
as such or as a department or division; (9) whether the
directors or executives of the subsidiary do not act
independently in the interest of the subsidiary but take
direction from the parent corporation; and (10) whether
the formal legal requirements of the subsidiary as a
separate and independent corporation are not observed.
Id., 896 P.2d at 1017.
No single factor is conclusive in determining whether to apply
the alter ego doctrine.

Id. at 1018.

In order to arrive at a

determination that one corporation is the alter ego of another, it
must be shown that allowing the legal fiction of separate corporate
structures results in an injustice.

Id.

In assessing this issue, the court is only concerned with
whether BSC has provided adequate allegations for the application
of the alter ego doctrine.

In its counterclaim and third-party

complaint, BSC alleges in pertinent part that: (1) BSC submitted a
bid to W&W to erect all steel for the project; (2) BSC ultimately
agreed with W&W to perform the work for a sum of $3,997,800 plus extra
of $62,029; (3) BSC had no contact with MMI up to this point; (4)
BSC then received a contract from W&W that provided that BSC would
be contracting with MMI, rather than W&W; (5) after objection by BSC,
W&W informed BSC that MMI would be the contractor in the BSC
subcontract; (6) BSC was assured by W&W that it would be paid and
its right to make a bond claim in the event of non-payment would not
9

be impaired or affected if W&W was allowed to issue joint checks to
BSC and MMI; (7) upon information and belief, W&W knew MMI was
undercapitalized; (8) the BSC subcontract was prepared by W&W; (9)
BSC raised certain concerns about the subcontract and those concerns
were addressed by W&W; (10) MMI holds itself out as a Hispanic
minority-owned small business; (11) upon information and belief, MMI
does not bid against W&W for jobs and has no assets to pay the
subcontractors with which W&W instructs MMI to enter contracts with
except for the funds made available by W&W; (12) MMI and W&W
purportedly

signed

a

subcontract

agreement

in

the

amount

of

$4,084,829, which is only $25,000 more than the BSC subcontract
amount; (13) the MMI/W&W subcontract was a sham and had no legal
purpose; (14) upon information and belief, the MMI/W&W subcontract
was put in place for the purpose of (a) claiming minority status under
the federal law, (b) using MMI as a facade for the operation of W&W,
(c) positioning BSC so that it could not make a payment bond claim
under the Miller Act, and (d) deceiving BSC into believing that W&W
was entering into an arms-length transaction with MMI; (15) prior
to and during the work on the project, BSC dealt with W&W in all
aspects of the work while MMI was not involved in any of the matters;
and (16) following its work on the project, BSC dealt with W&W about
payment for its work and W&W responded to BSC=s inquiries.

Based upon

these factual allegations, BSC contends that W&W and MMI acted as
10

one, single entity because (1) W&W controlled and directed all
aspects of BSC=s work on the project; (2) MMI exerted no control over
BSC with respect to the work on the project; and (3) W&W dominated
MMI to such an extent that W&W should be regarded as the contractor
and BSC should be regarded as the subcontractor under the MMI/W&W
subcontract.
The court believes that BSC has adequately stated a claim for
application of the alter ego doctrine.

The various allegations made

by BSC are sufficient to suggest that MMI is the alter ego of W&W.
The application of the various factors noted above do not all point
in one direction.

Nevertheless, the alleged facts show that the

policy and practices of the two corporations were such that MMI had
Ano separate mind, will, or existence of its own and is but a business
conduit for its principal.@

The court is aware that the use of the

alter ego doctrine to pierce the corporate veil is to be exercised
reluctantly and cautiously.

Pemco, Inc. v. Kansas Dept. of Revenue,

258 Kan. 717, 907 P.2d 863, 867 (1995).

Whether the doctrine should

be applied here must be based upon a consideration of the facts.
Commerce Bank, N.A. v. Liebau-Woodall & Assocs. L.P., 28 Kan.App.2d
674, 20 P.3d 88, 94 (2001).

At this point, the court must deny this

portion of the motions to dismiss filed by MMI and W&W.

11

B. Count II
In Count II, BSC alleges that, because W&W has third-party
beneficiary status in relation to the MMI-BSC subcontract, W&W is
also burdened with all of the duties and obligations of MMI to BSC
under the MMI-BSC subcontract in the event of MMI=s breach.
W&W contends that BSC=s claim of breach of contract as a
third-party beneficiary fails to state a claim upon which relief can
be granted.

W&W suggests that, although the Kansas courts have not

addressed the legal issue framed by BSC in Count II, Kansas would
follow the numerous other courts and jurisdictions that have
addressed the issue and find that W&W=s third-party beneficiary status
under the MMI-BSC subcontract did not impose upon W&W the duties and
obligations of MMI to BSC in the event of MMI=s breach.
In Count II, BSC alleges the following concerning this claim:
86. W&W has claimed third-party beneficiary status under
the BSC Subcontract.
87. Specifically, W&W alleges that BSC and MMI intended
to benefit W&W by virtue of their having signed the BSC
Subcontract. W&W alleges, therefore, that it is entitled
to bring the present lawsuit against BSC to enforce the
contractual provisions of the BSC Subcontract to W&W=s
benefit.
88. To the extent it is determined that W&W is a third-party
beneficiary of the BSC Subcontract, then W&W is bound by
all terms of the BSC Subcontract and assumes toward BSC
all obligations and responsibilities that MMI assumed
towards BSC, including the promises and obligation to pay
BSC for the steel erection work that it performed at the
Project for and on behalf of W&W and for the delays and
other damages it suffered in working at the Project.
12

The law is well-settled that BSC cannot pursue the claim
asserted in Count II.

When a third-party beneficiary relationship

is established, Athe third-party beneficiary, who did not sign the
contract, is not liable for either signatory=s performance and has
no contractual obligations to either.@

Motorsport Eng=g, Inc. v.

Maserati S.p.A., 316 F.3d 26, 29 (1st Cir. 2002) (internal citations
omitted); see also Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2nd
Cir.

AA

1985).

third-party

beneficiary

might

in

certain

circumstances have the power to sue under a contract; it certainly
cannot be bound to a contract it did not sign or otherwise assent
to.@

Comer

v.

Micor,

Inc.,

2006)(emphasis in original).

436

F.3d

1098,

1102

(9th

Cir.

Accordingly, BSC has failed to state

a claim against W&W upon which relief can be granted.

This claim

must be dismissed.
In reaching this conclusion, the court wants to comment on the
argument raised by BSC.

BSC relied heavily on a decision by Judge

Van Bebber in Peter=s Clothier, Inc. v. National Guardian Sec. Servs.
Corp., 994 F.Supp. 1343 (D.Kan. 1998).

BSC suggests that this

opinion supports its claim in this case.

We must disagree.

In Peter=s Clothier, the plaintiff store owner brought suit
against a security service for negligence and breach of implied
warranty arising from actions taken under a contract entered into
between the security service and the store=s property manager for
13

installation

of

security

upgrades

in

the

plaintiff=s

store.

Plaintiff denied that it was suing in the action as a third-party
beneficiary of the contract in an effort to avoid a limitation of
liability clause in the contract limiting the recovery of the
property manager and, hence, the third-party beneficiary store
owner.

Judge Van Bebber found that the plaintiff store owner was

a third-party beneficiary between the security service and the
property manager.

He further determined that the store owner could

not
accept the contract=s benefitsCthe upgraded security
system and the system's monitoring and repairCwhile
refusing the contract's burdensCthe provisions limiting
National Guardian=s liability. To hold otherwise would
allow third-party beneficiaries to benefit from the agreed
upon terms of a contract and then circumvent these very
terms merely by sounding their claims in tort rather than
contract.
Peter=s Clothier, 994 F.Supp. at 1348.
Peter=s Clothier does not stand for the proposition, as suggested
by BSC, that not only are a third-party beneficiary=s rights to recover
under a contract subject to all of the defenses and limitations that
the contract obligor could raise against the obligee, but that the
beneficiary may also be affirmatively sued for damages by the obligor
to make good on a contractual duty breached by the obligee.
suggested above, case law fails to support this position.
is unable to find any support for BSC=s contention.
14

As

The court

C. Count IV
In Count IV, BSC alleges that W&W and MMI, during the course
of its dealings with BSC on the Ft. Riley construction project,
Asupplied false information concerning the nature of the relationship
between W&W and MMI, concerning the nature of the relationship
between BSC and MMI.@

BSC has identified the following actionable

misrepresentations by W&W: (1) W&W would enter into a contract with
BSC to provide steel erection for the project; (2) MMI would act as
a contractor to BSC; (3) BSC would be paid, and that MMI were good
people and there won=t be any issues with them or its payment; and
(4) W&W and MMI were Aold friends@ and a company W&W had used in the
past.
MMI contends that BSC has failed to allege facts under Missouri
law that would support any claim of negligent misrepresentation
against it. MMI asserts that BSC has failed to state any allegedly
false statements made by MMI in the course of its dealings with BSC.
MMI notes that BSC only general avers that W&W, together with MMI,
Asupplied

false

relationship.@

information
MMI

points

concerning
out

the

that

nature

the

only

of

[their]

negligent

misrepresentations asserted by BSC concern statements made by W&W,
not MMI.

Moreover, MMI contends that BSC=s complaint is deficient

because BSC has not alleged that (1) MMI intentionally provided false
information to BSC for the purpose of providing guidance on the
15

contract at issue; (2) BSC relied upon information provided by MMI;
and (3) BSC suffered pecuniary loss as a result of the reliance on
false statements made by MMI.
W&W

contends

that

BSC=s

allegations

of

negligent

misrepresentation must fail because they assert claims based upon
W&W=s intent to perform an agreement in the future.

W&W argues that

negligent misrepresentation claims cannot arise solely from evidence
that a defendant did not perform according to a promise or statement
of future intent.

W&W next asserts that BSC=s claims that it would

be paid is not actionable negligent misrepresentation because it is
an opinion.

Finally, W&W suggests that BSC=s allegation that W&W

indicated that MMI was Agood people@ is immaterial to any issue in
this case.

W&W points out that BSC contends that W&W performed all

of the MMI contract functions, not MMI.

W&W also argues that BSC

has failed to plead its negligent misrepresentations claim with the
particularity required by Fed.R.Civ.P. 9(b).
BSC contends that the subcontract between MMI and BSC, which
is

attached

to

W&W=s

complaint,

contains

the

following

false

statements: (1) MMI has, or is in the process of negotiating a
contract with Balfour-Walton, a Joint Venture; and (2) MMI agreed
to fabricate, supply and/or erect steel products for the project.
BSC further suggests that it relied upon the terms and conditions
set forth in the subcontract and, as a result of the aforementioned
16

statements, it sustained damages because it is required to litigate
its right to make claim on the payment bond.
The parties agree that Missouri law should be applied to this
claim.

The elements of negligent misrepresentation in Missouri are:

(1) the speaker supplied information in the course of his business;
(2) because of the speaker=s failure to exercise reasonable care, the
information

was

false;

(3)

the

information

was

intentionally

provided by the speaker for the guidance of limited persons in a
particular business transaction; (4) the hearer justifiably relied
on the information; and (5) due to the hearer=s reliance on the
information, the hearer suffered a pecuniary loss.

Renaissance

Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 134 (Mo. 2010).
AA claim for negligent misrepresentation, unlike one for fraud, does
not involve a question of intent. Rather, such a claim is premised
on the theory that the speaker believed the information supplied was
correct but was negligent in so believing.@

Id.

A review of the third-party complaint reveals that BSC has
alleged the required elements of negligent representation against
W&W and MMI.

The claim asserted by BSC contains the allegations

required by Missouri law and contains a plausible claim for relief.
Accordingly, the court shall not dismiss this claim.
D. Count V
In Count V, BSC asserts a claim of quantum meruit/unjust
17

enrichment against W&W.

BSC alleges that it is entitled to payment

from W&W for steel erection labor, equipment and services provided
by it for the Fort Riley project that conferred a benefit upon W&W.
BSC contends that it is entitled to these payments based upon an
implied promise of W&W to pay BSC a Areasonable sum@ for those items.
W&W argues that this claim fails to state a claim because BSC
has failed to allege that (1) W&W failed to pay any person, i.e.,
MMI, BSC or any other person; and (2) BSC informed W&W that it expected
to be paid by W&W.

W&W suggests that BSC has made clear in its

allegations that it expected to be paid by MMI, the entity with whom
it had contracted to perform the steel erection work, not W&W.
BSC has responded that it has alleged that W&W was aware that
BSC expected to be compensated by W&W.

BSC has alleged that W&W

solicited and negotiated a bid from BSC to perform steel erection
work on the project, and then switched BSC=s contract to a different,
undercapitalized contractor-BMMI.

BSC asserts that W&W Atricked and

deceived@ BSC by inducing a change in BSC=s positionB-from a contract
with W&W, a known contractor, to a sub-contract with MMI, an unknown
subcontractorB-by repeatedly telling BSC that it would be paid and
that BSC=s changed position due to W&W=s actions were detrimental
because it caused BSC to be down line from an undercapitalized
subcontractor which resulted in nonpayment and caused BSC to be too
remote to make a Miller Act payment bond claim.
18

BSC also contends that W&W=s argument that BSC has failed to
allege that W&W failed to pay MMI or any other person for benefits
BSC conferred on W&W misses the mark.

BSC suggests that its quantum

meruit/unjust enrichment claim is based on BSC=s direct interactions
with W&W.

BSC points to the following facts as support for this

contention: (1) W&W directed BSC=s work on the project; (2) W&W
received and reviewed BSC=s daily logs and reports; (3) W&W received,
reviewed and submitted BSC=s pay applications; and (4) W&W paid BSC
directly for its work on the project.
The Kansas Supreme Court has explained quantum meruit/unjust
enrichment as follows:
A>Quantum meruit is an equitable doctrine. ARestitution and
unjust enrichment are modern designation for the older
doctrine of quasi-contracts.@ Peterson v. Midland Nat=l
Bank, 242 Kan. 266, 275, 747 P.2d 159 (1987). AThe theory
of quasi-contract is raised by the law on the basis of
justice and equity regardless of the assent of the
parties.@ Holiday Development Co. v. Tobin Construction
Co., 219 Kan. 701, 708, 549 P.2d 1376 (1976). AThe substance
of an action for unjust enrichment lies in a promise
implied in law that one will restore to the person entitled
thereto that which in equity and good conscience belongs
to him [or her].@ Peterson, 242 Kan. at 275 [747 P.2d 159].=
Pioneer Operations Co. v. Brandeberry, 14 Kan.App.2d 289,
299, 789 P.2d 1182 (1990).@
Haz-Mat Response, Inc. v. Certified Waste Services, Ltd., 259 Kan.
166, 910 P.2d 839, 846 (1996)(quoting Haz-Mat Response, Inc., v.
Certified Waste Services, Ltd., 21 Kan.App.2d 56, 896 P.2d 393, 399
(1995)).
19

The basic elements of a claim based upon the theory of unjust
enrichment are: A(1) a benefit conferred upon the defendant by the
plaintiff; (2) an appreciation or knowledge of the benefit by the
defendant; and (3) the acceptance or retention by the defendant of
the benefit under such circumstances as to make it inequitable for
the defendant to retain the benefit without payment of its value.@
J.W. Thompson Co. v. Welles Products Corp., 243 Kan. 503, 758 P.2d
738, 745 (1988).
The court is persuaded that BSC Steel has sufficiently alleged
a claim of quantum/meruit/unjust enrichment against W&W based upon
Kansas law.

This is one of several claims that the court believes

might be better evaluated on summary judgment.
E. Count VI
In Count VI, BSC seeks an equitable award of a reasonable sum
for its labor, equipment and services that it allegedly provided to
the Ft. Riley project, all based upon its alleged detrimental
reliance upon certain promises made to it by W&W that BSC would be
paid for such work.
W&W seeks dismissal of BSC=s claim of promissory estoppel for
failure to state a claim upon which relief can be granted.

W&W

argues that the oral promises stated in Count VI do not constitute
a Avalid and otherwise enforceable contract,@ a prerequisite for
promissory estoppel.

W&W contends that these promises are simply
20

too vague and indefinite to constitute a valid contract.
BSC has countered that the argument raised by W&W is immaterial.
BSC indicates that it does not dispute that it cannot simultaneously
recover under the theories of both breach of contract and promissory
estoppel.

BSC states that it is asserting the promissory estoppel

claim as an alternative to its breach of contract claim because W&W
actively disputes BSC=s claim of a valid and enforceable contract.
BSC contends that, under the doctrine of the election of remedies,
it cannot be forced to choose between its alternate theories prior
to trial.
Where a breach of contract theory does not permit recovery,
Kansas has traditionally allowed a remedy under the theory of
promissory estoppel.

Bittel v. Farm Credit Svcs. of Central Kansas,

P.C.A., 265 Kan. 651, 962 P.2d 491, 498 (1998).

To be successful

on a promissory estoppel claim, a plaintiff must establish evidence
showing (1) the promisor reasonably intended or expected the promisee
to act in reliance on the promise; (2) the promisee acted reasonably
in reliance on that promise; and (3) a refusal of the court to enforce
the promise would sanction the perpetration of fraud or result in
other injustice.

See Ayalla v. Southridge Presbyterian Church, 37

Kan.App.2d 312, 152 P.3d 670, 677 (2007).
The court believes that BSC has adequately stated a claim of
promissory estoppel.

BSC has alleged the necessary elements for a
21

promissory estoppel claim.

Accordingly, this portion of W&W=s motion

shall be denied.
F. Count VII
In Count VII, BSC seeks payment under the payment bond issued
by Liberty Mutual for the Ft. Riley project.

BSC contends that it

is an intended beneficiary of the W&W bond, and is therefore entitled
to receive from W&W and Liberty Mutual all remaining contract
balances owed to it.
Liberty Mutual asserts that BSC=s claim on the payment bond must
fail because it is wholly derivative of W&W=s liability on the
substantive claims and BSC has failed to state any claim upon which
relief can be granted against W&W.

As noted previously in this

order, the court finds that BSC has sufficiently alleged certain
claims against W&W.

Therefore, the court shall not dismiss BSC=s

claim against Liberty Mutual based upon the payment bond.
G. Count VIII
In Count VIII, BSC asserts a claim against W&W, MMI and Liberty
Mutual under the Kansas Fairness in Public Construction Contract Act
(KFPCCA), K.S.A. 16-1901 et seq., for monies BSC contends it is owed
on the Ft. Riley project and certain related costs, attorney=s fees
and interest.
MMI and W& W assert that BSC cannot make a claim under the KFPCCA
because BSC was not performing work under a contract entered into
22

with a proper owner.

They suggest that the only contracts covered

by the KFPCCA are contracts with the State of Kansas or one of its
subdivisions.
dismissed.

Thus, they contend that Count VIII should be

BSC counters that it did enter into a contract for public

construction so the provisions of the KFPCCA should apply and MMI=s
motion on this claim should be denied.
The KFPCCA requires payments to subcontractors, including
retainage, within seven business days of receipt of payment from the
owner.

K.S.A. 16-1903(f); see also VHC Van Hoecke Contracting, Inc.

v. Murray & Sons Const. Co., Inc., 278 P.3d 1001, 2012 WL 2326027
at * 2 (Kan.App. June 15, 2012).

Interest and attorney fees will

accrue if the contractor fails to pay the undisputed amounts.

K.S.A.

16-1904 and 16-1906.
Under the KFPCCA, an Aowner@ is defined as Aa public entity that
holds an ownership interest in real property.@

K.S.A. 16-1902(e).

A Apublic entity@ means Athe state of Kansas, political subdivisions,
cities, counties, state universities or colleges, school districts,
all special districts, join agreement entities, public authorities,
public trust, nonprofit corporations and other organizations which
are operated with public money for the public good.@

K.S.A.

16-1902(f).
Neither party has provided the court with any case authority
interpreting the aforementioned provisions and the court has failed
23

to discover any relevant case law.

Thus, the court writes on a clean

slate.
MMI and W&W contend that the focus of the statute is upon public
construction projects in Kansas involving property owned by the State
of Kansas, one of its subdivisions, or any of the public entities
defined in K.S.A. 16-1902.

They argue that BSC=s third-party

complaint and counterclaim does not allege a Apublic entity@ that
maintains an ownership interest in the property at issue here.

BSC

responds that A[t]here is no requirement in the KFPCCA that a >public
entity= be a public entity affiliated with the state of Kansas.@

BSC

points out that the definition of public entity under the KFPCCA
includes Aother organizations which are operated with public money
for the public good.@

Thus, BSC suggests that a construction

contract involving the steel fabrication and erection work at an army
hospital at a military base is Aclearly an organization operated with
public money for the public good.@
As correctly pointed out by W&W, the actual owner in this case
is the United States.

The prime contract in this case was issued

by the United States Corps of Engineers as agent for the United
States.

Thus, the court must consider whether the AUnited States@

constitutes a Apublic authority@ or Aorganization operated with public
money.@

24

The court=s review of the definition of Apublic entity@ indicates
that the KFPCCA applies only to entities that have a connection with
the State of Kansas.

The definition starts with the State of Kansas

and then enumerates smaller entities.

The court is not persuaded

that the public entity definition would have been written in this
fashion if the legislature had intended to include the United States
as falling into the category of Aother organizations which are
operated with public money for the public good.@
Even

assuming

that

the

definition

of

public

entity

was

ambiguous, application of the ejusdem generis canon of statutory
construction would lead to the same conclusion.

As explained in

State v. Moler, 269 Kan. 362, 2 P.3d 773, 775 (2000):
The rule of ejusdem generis (of the same kind) is a
well-known maxim of construction to aid in ascertaining
the meaning of a statute or other written instrument which
is ambiguous. Under the maxim, where enumeration of
specific things is followed by a more general word or
phrase, such general word or phrase is held to refer to
things of the same kind, or things that fall within the
classification of the specific terms. State Bd. of Nursing
v. Ruebke, 259 Kan. 599, 620, 913 P.2d 142 (1996).
The KFPCCA expressly states that the State of Kansas and
subdivisions are public entities for the purposes of the Act.

The

KFPCCA, however, does not contain a similar provision defining the
federal government and its subdivisions in its definition of Apublic
entity.@

Thus, under the maxim Aexpressio unius est exclusio aterius

(the express mention of one thing excludes all others),@ it may be
25

presumed that the legislature expressly included specific terms
concerning the State of Kansas and its subdivisions, but intended
to exclude the Federal government, other State governments, and their
subdivisions from the Apublic entity@ category.

See In re Lietz

Const. Co., 273 Kan. 890, 47 P.3d 1275, 1290 (2002).

Moreover,

because the KFPCCA enumerates a list of governmental entities from
the broadest and most expansive to the least expansive, the general
terms Apublic authorities@ or Aorganizations@ coming at the end could
not possibly include the United States, the broadest and most
expansive public entity possible.

If the legislature had intended

to include the United States in the definition of Apublic entity,@
it would have preceded the State of Kansas with the United States
in the enumerated order of entities.

Thus, based upon this

construction of the KFPCCA, the court finds that the prime contract
and the subcontracts extending from it do not fall within the purview
of the KFPCCA.

The court must dismiss Count VIII against W&W, MMI

and Liberty Mutual for failure to state a claim upon which relief
can be granted.
H. Count IX
In Count IX, BSC asserts claims against W&W, MMI and Liberty
Mutual under the Federal Prompt Payment Act (FPPA), 31 U.S.C. §3901
et seq., for monies BSC contends it is owed on the Ft. Riley project,
and certain related costs, attorney=s fees and interest.
26

W&W, MMI and Liberty Mutual contend that BSC has failed to state
a claim under the FPPA because it does not provide a private cause
of action to a contractor seeking payment from another contractor.
Thus, they argue that this claim should be dismissed because the FPPA
does not create a private right of action for subcontractors.

These

parties point to a number of federal courts that have reached this
conclusion.
BSC has suggested a somewhat circuitous route in contending that
the FPPA provides it with a cause of action here.

BSC argues that

the FPPA requires that the prime contractor on a federal construction
project to ensure that every subcontract on the project contains
certain terms regarding payment required by the Act.

It further

asserts that these provisions, by operation of law, must be read into
every federal construction contract or subcontract falling under the
FPPA.

Thus, BSC contends that these provisions are read into the

MMI-BSC contract and BSC can then sue W&W on them.
The court finds no merit to the argument raised by BSC.

The

FPPA mandates that government construction contracts must include
a clause that requires the general contractor to pay subcontractors
for satisfactory performance within seven days of receipt of payment
from the federal agency.

See 31 U.S.C. §3905(b)(1). Courts,

however, have repeatedly rejected the argument that the FPPA contains
either an explicit or implied private cause of action in favor of
27

unpaid subcontractors.

See United States ex rel. IES Comm=l, Inc.

v. Continental Ins. Co., Inc., 814 F.Supp.2d 1, 2-4 (D.D.C. 2011);
United States ex rel. King Mountain Gravel, LLC v. RB Constructors,
LLC, 556 F.Supp.2d 1250, 1252-53 (D.Colo. 2008); In re Thomas, 255
B.R. 648, 654 (Bkrtcy.D.N.J. 2000); U.S. ex rel. Virginia Beach
Mechanical Services, Inc. v. SAMCO Construction Co., 39 F.Supp.2d
661, 677B78 (E.D.Va.1999); Transamerica Premier Ins. Co. v. Ober, 894
F.Supp. 471, 479B80 (D.Me.1995).
As stated in King Mountain Gravel, 556 F.Supp.2d at 1253:
ACongress intended that a subcontractor must opt to bring its claims
either under state lawB-as allowed by 31 U.S.C. §3905(j)B-or under
the Miller Act.@

Moreover, the law is also well-settled that a claim

under the FPPA can only be asserted after it has been resolved that
a contractor is entitled to payment.

Thus, subcontractors on

federal construction projects cannot bring a concurrent FPPA claim
in conjunction with a Miller Act claim.

Accordingly, for the

foregoing reasons, BSC cannot bring a claim under the FPPA.

The

court shall dismiss BSC=s claim against MMI, W&W and Liberty Mutual
under the FPPA in Count IX for failure to state a claim upon which
relief can be granted.
I. Count X
In Count X, BSC asserts a claim of fraudulent misrepresentation
against

W&W.

BSC

alleges

that
28

W&W

committed

fraud

when

it

deliberately failed to disclose to BSC that MMI, a minority-based
subcontractor, would be involved in the Ft. Riley project.

BSC

further alleges that it relied upon the fact that it would be doing
business with W&W when it submitted a bid for the project.
W&W contends that BSC=s claim of fraudulent misrepresentation
fails to state a claim upon which relief can be granted.

W&W asserts

that BSC (1) has failed to allege fraud with sufficient particularity
under Fed.R.Civ.P. 9(b); (2) cannot assert a claim for fraudulent
inducement to enter a contract based upon prior representations that
are contrary to the terms of the contract that BSC saw before
execution; and (3) has failed to allege that W&W intended to deceive
BSC at the time the alleged misrepresentations were made.
The parties disagree on the law applicable to this claim.

W&W

contends that Kansas law applies while BSC suggests that Missouri
law is applicable.

W&W has suggested that it makes no difference

which state law is applied because the law of both is similar on claims
of fraudulent misrepresentation.
The choice of law rule in Kansas provides that the law of the
state where the tort occurred applied.

First Magnus Fin. Corp. V.

Star Equity Funding, LLC, 2007 WL 635312 at * 4 n. 2 (D.Kan. Feb.
27, 2002).

Since BSC=s principal place of business is in Kansas City,

Missouri, the court finds that Missouri law should be applied here.
Rule 9(b) requires parties asserting fraud to Astate with
29

particularity the circumstances constituting fraud or mistake.@
Fed.R.Civ.P. 9(b). The complaint must Aset forth the time, place and
contents of the false representation, the identity of the party
making the false statements and the consequences thereof.@

Schwartz

v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.
1997)(quoting Lawrence Nat=l Bank v. Edmonds, 924 F.2d 176, 180 (10th
Cir. 1991)).
To establish a claim of fraudulent misrepresentation under
Missouri law, a claimant must show (1) a representation, (2) its
falsity, (3) its materiality, (4) the speaker=s knowledge of the
representation=s falsity or ignorance of its truth, (5) the speaker=s
intent that the representation be acted upon by the person and in
the manner reasonably contemplated, (6) the hearer=s ignorance of the
falsity of the representation, (7) the hearer=s reliance on the truth
of the representation, (8) the hearer=s right to rely thereon and (9)
the hearer=s consequent and proximate injury.

Hess v. Chase

Manhattan Bank, USA, N.A., 220 S.W.3d 758, 765 (Mo. 2007).
In its counterclaim, BSC alleges that W&W engaged in a
fraudulent misrepresentation by representing that it would contract
with BSC if W&W was the successful bidder on the project, and did
not disclose that the final contract would be with MMI.

Thus, BSC

contends that W&W=s failure to disclose that it was negotiating a
contract for MMI and not for itself constitutes actionable fraudulent
30

misrepresentation under Missouri law.

W&W counters that there is

no actionable fraud or intent to deceive by W&W because W&W informed
BSC that MMI would be the contracting party before BSC bound itself
to its bid on the project.
The court has reviewed the allegations contained in the
third-party complaint on this claim.
has

adequately

alleged

a

The court believes that BSC

plausible

claim

for

fraudulent

misrepresentation under Missouri law and Fed.R.Civ.P. 9(b).

The

court recognizes that W&W has raised some arguments that may
ultimately demonstrate that BSC is not entitled to relief.

However,

the court believes that those arguments must be considered on a motion
for summary judgment when the facts related to this claim are set
forth.

At this time, the court finds only that BSC has properly

stated a claim and is entitled to proceed to discovery.
J. Count XI
In Count XI, BSC asserts claims against W&W, MMI and Liberty
Mutual under the Kansas Fairness in Private Construction Act (KFPCA),
K.S.A. 16-1801 et seq., for monies BSC contends it is owed on the
Ft. Riley project and certain related costs, attorney=s fees and
interest.
MMI and W&W contend that BSC=s claim under the KFPCA should be
dismissed because the construction project at issue in this action
is not subject to the terms of KFPCA.
31

They note that the KFPCA

applies only to contracts involving property owned by Aan individual,
corporation, estate, trust, partnership, limited liability company,
association, joint venture or any other legal entity.@
16-1802(d) & (e).

K.S.A.

Thus, they argue that a federal project on federal

land would not fall within the purview of the KFPCA.
The parties have failed to provide the court with any case
authority for their positions on the KFPCA.

The court fails to find

any Kansas cases that have construed the KFPCA.
As noted previously, the KFPCA applies to contracts involving
property owned by Aan individual, corporation, estate, trust,
partnership, limited liability company, association, joint venture
or any other legal entity.@

K.S.A. 16-1802(d) and (e).

other legal entity@ is not defined by the KFPCA.

The term Aany

The court believes

that the application of the rule of ejusdem generis which dictates
that Awhere enumeration of specific things is followed by a more
general word or phrase, such general word or phrase is held to refer
to things of the same kind, or things that fall within the
classification of the specific terms,@ see State v. Vogt, 30
Kan.App.2d 1138, 55 P.3d 365, 368 (2002), indicates that the KFPCA
covers

property

owned

by

private,

non-governmental

entities.

Because the KFPCA enumerates a list of private, non-governmental
entities that may be Aowners@ for purposes of the Act, the term Aother
legal entity@ should be construed to encompass only similar private
32

actors, and should not be read to encompass governmental units such
as the United States or branches of its military.

This construction

is also consistent with the title of the act, the Kansas Fairness
in Private Construction Act.

See Kern v. Miller, 216 Kan. 724, 533

P.2d 1244 (1975)(statute providing immunity to various governmental
bodies does not apply to individuals and this construction is
consistent with title of the act, AClaims Against the State@).

BSC

has failed to allege facts that show that the project at issue
involved real property owned by a statutorily-defined private
entity.

Accordingly, BSC=s claim under the KFPCA must be dismissed.
V.

In sum, the court shall grant in part and deny in part the motions
to dismiss filed by MMI and W&W.

The court shall dismiss the

following claims contained in BSC=s third-party complaint: Count II
against W&W (breach of contract), Count VIII against W&W, MMI and
Liberty Mutual (KFPCCA), Count IX against W&W, MMI and Liberty Mutual
(FPPA) and Count XI against W&W, MMI and Liberty Mutual (KFPCA).

The

court shall deny the motions as they address the remaining claims.
IT

IS

THEREFORE

ORDERED

that

the

motion

to

dismiss

of

counterclaim defendant W&W Steel, LLC and third-party defendant
Liberty Mutual Insurance Company (Doc. # 69) be hereby granted in
part and denied in part.

The following counts of BSC Steel, LLC=s

second amended counterclaim and third-party complaint are hereby
33

dismissed for failure to state a claim upon which relief can be
granted: Count II, Count VIII, Count IX and Count XI.
IT IS FURTHER ORDERED that the motion to dismiss of third-party
defendant Material Management, Inc. (Doc. # 66) be hereby granted
in part and denied in part.

The following count of BSC Steel, LLC=s

third-party complaint is hereby dismissed for failure to state a
claim upon which relief can be granted: Count VIII, Count IX and Count
XI.
IT IS SO ORDERED.

Dated:

May 9, 2013

s/

Julie A. Robinson

United States District Judge

34