Shelter Products Inc v. American Construction Hotel Corp et al

Filing 43

MEMORANDUM RULING granting in part and denying in part 28 Motion for Summary Judgment; granting 31 Motion for Partial Summary Judgment. Shelter's Motion for Partial Summary Judgment (Doc. 31 ) is granted by holding that ACHC is bound as a surety under the joint check agreement up to the amount of $92,291. The Motion for Summary Judgment (Doc. 28 ) filed by ACHC and Ganga is granted in part by dismissing the claim against ACHC under the LUTPA and is denied in all other respects. Signed by Magistrate Judge Mark L Hornsby on 6/26/2014. (crt,Dauterive, C)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION

SHELTER PRODUCTS, INC.

CIVIL ACTION NO. 12-cv-2533

VERSUS
AMERICAN CONSTRUCTION HOTEL
CORP., ET AL

MAGISTRATE JUDGE HORNSBY

MEMORANDUM RULING
Introduction
Ganga, LLC (“Ganga”) built a new hotel in Bossier City, Louisiana. The general
contractor for the project was American Construction Hotel Corporation (“ACHC”), which
subcontracted the framing work to Cratus Development, LLC (“Cratus”). Cratus purchased
lumber for the job from Shelter Products, Inc.
Cratus did not pay for all of the lumber it ordered. Shelter filed this suit against
Cratus, ACHC, and Ganga. The complaint alleges that Cratus breached the purchase order
and failed to pay on open account. Cratus did not answer, and the clerk has entered a default
against it. Shelter alleges that ACHC (1) breached a joint check agreement that obligated it
to pay Shelter any amounts Cratus did not pay and (2) violated the Louisiana Unfair Trade
Practices Act (“LUTPA”) when ACHC attempted to modify the terms of the joint check
agreement. Shelter also makes a claim against Ganga under the LUTPA for allegedly not
giving Shelter notice of substantial completion as required by Louisiana lien statutes.

ACHC and Ganga filed a Motion for Summary Judgment (Doc. 28) and attacked all
claims against them. Shelter opposed the motion and filed its own Motion for Partial
Summary Judgment (Doc. 31) to seek a ruling in its favor on its breach of contract claim
against ACHC.
Relevant Facts
The underlying debt in this case stems from a “Bid Acceptance” agreement between
Shelter and Cratus. The agreement identifies Cratus as the buyer and states: “Shelter
Products, Inc. hereby offers to sell to the above Buyer the following goods on the terms and
conditions set forth in this Bid Acceptance.” It lists in detail the lumber items to be provided,
the prices for each, and conditions related to shipping, quality of goods, payment terms, and
the like. The “Grand Total Sell” figure is $92,291. The agreement states that it constitutes
the entire agreement between buyer and seller. It also states that Shelter’s obligation to ship
lumber is contingent on Cratus qualifying for credit approval, which shall be determined in
Shelter’s discretion. The agreement was signed by representatives of Cratus and Shelter on
October 3, 2011. The general contractor, ACHC, is not mentioned anywhere in the
agreement and is not a signatory.
At the center of this case is a joint check agreement that representatives of Cratus and
Shelter also signed on October 3. General contractors often use joint checks to make sure
subcontractors properly pay suppliers. The general contractor issues a “joint check” payable
to both the subcontractor and supplier, so the check cannot be cashed until endorsed by both
parties. The subcontractor and supplier can work out the details of who gets what portion
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of the check. Suppliers often request joint check arrangements to give them another avenue,
together with the potential for filing a lien, to protect their rights and obtain payment. 1
Construction Contracts Deskbook, § 21:1.
The facts are not clear about which party requested a joint check agreement, but one
was prepared. It states that is “Re: WinGate Inn, Bossier City, La.” and contains the
following provisions:
(1) “[ACHC] hereby agrees to make payments to Shelter Products, Inc. and Cratus
Development by joint check for the lumber contract(s) on the above referenced project(s).
Any refunds will be paid to Cratus Development.”
(2) “If Cratus Development does not start or complete work on this project, and/or
becomes past due with Shelter Products, Inc. to the extent that Shelter Products, Inc. can no
longer extend credit to Cratus Development, [ACHC] will make payments directly to Shelter
Products, Inc. for all outstanding and unpaid invoices for materials delivered to the job site
and [ACHC] agrees to purchase remaining unshipped material at the prices agreed upon by
Cratus Development. Should this item become necessary, a copy of the original Bid
Acceptance will be provided to [ACHC] by Shelter Products, Inc.”
(3) Below the signature lines for the three parties, a paragraph discusses the use of
facsimile signatures and then states: “This agreement can be altered only with the unanimous
consent of all parties.”
Representatives for Shelter and Cratus signed the agreement and dated it October 3,
2011. The following day, a project manager for Cratus emailed the partially executed
agreement to Barbara Graves at ACHC. The manager asked that the document be signed and
returned to him. Ms. Graves replied that she would have Brand Eigen sign it when he
returned from Louisiana. Ms. Graves stated in her email that Mr. Eigen “will want me to
put an amount not to exceed, do you know how much in materials you’ll need to buy?” The

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Cratus manager replied that the current total was $92,291 but there could be a need for more
items. He added: “I need this signed before they cut loose the lumber.”
Brand Eigen, the president and 100% owner of general contractor ACHC, testified in
a deposition that he assumed subcontractor Cratus made the arrangements to purchase the
framing materials from Shelter. ACHC was not involved in that decision. Eigen could not
recall why ACHC made payment to Shelter and Cratus by joint check, but he guessed it
might be at the request of Cratus. He said it was his company’s practice to make payment
by joint check to subcontractors and suppliers unless he received an unconditional lien
waiver.
Mr. Eigen, without discussing it with anyone from Shelter or Cratus, added below the
signature lines a handwritten notation: “Not to exceed $92,291.” He wrote his initials beside
the handwritten addition. He signed the agreement and dated it October 4, 2011. Eigen, in
his testimony, described his addition to the form as a counteroffer. He said he was otherwise
satisfied with the contents of the agreement.
Eigen was asked if he anticipated that Cratus and Shelter would add their initials to
his beside the limiting language. He answered: “I don’t know if I anticipated they would
initial next to it, but I probably would anticipate that they would send something that they
agreed with that.” He said most joint check agreements come with a “not to exceed” dollar
amount already on them. If the proposed agreements do not, he asks for an appropriate
limitation amount.

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Eigen returned the signed document to ACHC coworker Barbara Graves, but he does
not know what she did with it. He assumed Ms. Graves sent the agreement to someone at
Cratus or Shelter, but he did not know. ACHC stated in an answer to an interrogatory that
Barbara Graves forwarded the joint check agreement as amended and signed to the project
manager at Cratus, “who ACHC assumed forwarded it to representatives at Shelter.”
Presumably, Shelter received the executed/modified agreement or suitable confirmation that
it had been signed; it began shipping lumber on credit soon after the signing date.
Shelter states in a brief that it shipped lumber to the job site at the request of Cratus
from October to December 2011. Shelter invoiced Cratus. ACHC issued one joint check in
November 2011 payable to Shelter and Cratus for $20,352. Shelter did not receive any other
payments.
The original motions did not provide specific evidence of when Shelter first received
the version of the joint check agreement with the limitation language added. The court
ordered the record supplemented with evidence of when Shelter became aware of the “not
to exceed” language. Shelter offered the statement of sales manager Dustin Cook, who said
that Shelter first became aware of the language on December 19, 2011 through an email sent
by Barbara Graves to Shelter employee Michelle Moore. The December 19 email from
Graves (ACHC) asked Moore (Shelter) about some details on an invoice and explained that
Graves wanted to make sure they were all on the same page “because the joint check
agreement was not to exceed $92,291 and obviously we have surpassed that.” Cook states
in his affidavit that Ms. Moore promptly forwarded me and Shelter’s Director of Credit a
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copy of Ms. Graves’s email along with a copy of the modified Joint Check Agreement.” A
copy of Ms. Moore’s email indicates that she wrote to Dustin Cook and two other persons
to make them aware of “a possible issue with the joint check agreement.” She stated: “I have
attached a copy of the original joint check agreement with a note that it is not to exceed
$92K.” She added that there was an open balance of more than $126,000.
Neither Cook’s affidavit nor Moore’s emails make clear where Moore got the copy
of the joint check agreement. Had it been in a file at Shelter since October when it was
signed, but only retrieved and circulated when the nonpayment issue arose? Or did Ms.
Moore send Shelter its first copy of the modified agreement during the December
discussions? There is no indication of a December email from Ms. Moore sending a copy,
but there is no other direct evidence of when Shelter first received a copy of the agreement.
If the parties know, they have not clearly communicated this fact in their submissions.
Shelter sent a notice of nonpayment to ACHC and Ganga in February 2012 and stated
that the balance due on Cratus’s account was more than $125,000. ACHC has since taken
the position in discovery answers that there was no meeting of the minds as to the
“proposed” joint check agreement because neither Shelter nor Cratus ever indicated
acceptance of the limitation clause added by ACHC. ACHC’s discovery response added that
its “counteroffer” to enter a joint check agreement not to exceed $92,291 is withdrawn,
meaning it would bear no responsibility to pay for any of the lumber.

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Effect of the Joint Check Agreement
ACHC invokes the general rule of Civil Code Article 1943 that “[a]n acceptance not
in accordance with the terms of the offer is deemed to be a counteroffer.” It contends that
the limiting language added by Mr. Eigen was not in accordance with the terms of the offer,
so the document ACHC signed was a counteroffer that was never accepted and, after demand
for payment was made, was withdrawn.
Shelter argues that the transaction regarded a sale of lumber, so the agreement is more
properly governed by the code articles under the chapter on sales of movables. Civil Code
Article 2601 states that “[a]n expression of acceptance of an offer to sell a movable thing
suffices to form a contract of sale if there is agreement on the thing and the price, even
though the acceptance contains terms additional to, or different from, the terms of the offer,
unless acceptance is made conditional on the offeror’s acceptance of the additional or
different terms.” Where there is no such condition, the additional or different terms are
regarded as “proposals for modification and must be accepted by the offeror in order to
become a part of the contract.” A different rule applies to transactions between merchants.
The article provides that, for merchants, additional terms become part of the contract unless
they alter the offer materially, meaning when their nature is such that it must be presumed
the offeror would not have contracted on those terms. Comment (g) under the article states
that a clause relative to the extent of the parties’ liability is an example of such a term.
Shelter argues that the limiting language added by ACHC was a material alteration that did

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not become part of the joint check agreement, and the agreement is therefore enforceable to
the full extent of the debt.
The bid acceptance between Cratus and Shelter is fairly described as a sale of
movables, but the joint check agreement is a separate document that is not incorporated by
reference or otherwise made a part of the bid acceptance regarding the purchase of lumber.
The court finds that the joint check agreement is not a sale of movables. Rather, it is a
contract of suretyship, which Civil Code Article 3035 defines as “an accessory contract by
which a person binds himself to a creditor to fulfill the obligation of another upon the failure
of the latter to do so.” That is precisely what ACHC did when it signed the joint check
agreement and promised Shelter (the creditor) that it would fulfill the obligation of Cratus
under the bid acceptance if Cratus failed to perform.
One might argue that ACHC made itself a party to the contract for the sale of lumber
by agreeing to make payments for the lumber ordered by Cratus and agreeing to purchase
even unshipped material if Cratus should default. ACHC is nonetheless a surety because
“[o]ne who ostensibly binds himself as a principal obligor to satisfy the present or future
obligations of another is nonetheless considered a surety if the principal cause of the contract
with the creditor is to guarantee performance of such obligations.” La. Civ. Code art. 3037.
The court finds that the principal cause of the joint check agreement was to guarantee
Cratus’s performance, so ACHC is considered a surety even though it ostensibly bound itself
as the buyer under the bid acceptance.

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ACHC argues that the lack of written agreement by the other parties regarding the
amount limitation means the joint check agreement is not binding because Civil Code Article
3038 requires: “Suretyship must be express and in writing.” The joint check agreement
meets both of those requirements. It is written and expressly binds ACHC to guarantee
performance of Cratus’s obligations. The lack of formal written acceptance of ACHC’s
limitation on its liability did not prevent the agreement from binding ACHC. “Suretyship is
established upon receipt by the creditor of the writing evidencing the surety’s obligation.”
La. Civ. Code Art. 3039. “The creditor’s acceptance is presumed and no notice of
acceptance is required.” Id. Shelter received the joint check agreement signed by ACHC no
later than December 2011. That receipt established Shelter’s acceptance of the suretyship
and bound ACHC to its terms, subject to the limitation of $92,291. Shelter cannot enforce
a guarantee for any greater amount because it does not possess any express writing signed
by ACHC for a greater amount.
The parties debate the effect, if any, of the preprinted language that the agreement can
be altered only with unanimous consent of all parties. The agreement did not exist until
ACHC added the limitation of liability language, signed the document, and the document was
received/accepted by Shelter. At that moment, the limitation (and the rest of the agreement)
became effective. Unanimous consent was thereafter required for any alterations, but the
preprinted language did not prohibit ACHC from adding the limitation provision to the
writing before the agreement became effective.

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ACHC also argues that its handwritten “counteroffer” was withdrawn after this suit
was filed. As explained above, the suretyship agreement became effective when received
by Shelter. To the extent ACHC tried to withdraw from the agreement after this dispute
arose, it is still bound for the obligations incurred by Cratus to that point. The termination
of suretyship by notice to a creditor does not affect the surety’s liability for obligations
already incurred by the principal obligor. La. Civ. Code Art. 3601. For these reasons, the
court will grant Shelter’s Motion for Partial Summary Judgment by holding that ACHC is
bound as a surety under the joint check agreement for $92,291.
Shelter’s Claim Against ACHC Under LUTPA
Shelter alleges in Count IV of its Amended Complaint that ACHC’s addition of the
limitation of liability language and attempt to enforce the provision gave rise to a cause of
action under the LUTPA. The Act declares it unlawful to engage in “unfair methods of
competition and unfair or deceptive acts or practices in the conduct of any trade or
commerce.” La. R.S. 51:1405. Louisiana courts apply this broad language to determine on
a case-by-case basis what conduct violates the LUTPA.
Louisiana jurisprudence has established that a plaintiff must show that the alleged
conduct “offends established public policy and is immoral, unethical, oppressive,
unscrupulous, or substantially injurious.” Cheramie Services, Inc. v. Shell Deep Water Prod.,
35 So.3d 1053, 1059 (La. 2010). Conduct may offend established public policy and be
unethical, yet not necessarily violate the LUTPA. Only egregious actions involving elements
of fraud, misrepresentation, deception, or other unethical conduct will be sanctioned based
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on LUTPA. Quality Environmental Processes, Inc. v. IP Petroleum Co., Inc., ____ So.3d
____, 2014 WL 1800081, *12 (La. 2014).
ACHC’s motion attacked the breach of contract and LUTPA claims against it, but it
did not offer any particular analysis of the LUTPA claim apart from its contention that there
was never an agreement. Shelter nonetheless discussed the claim in its opposition, and
ACHC addressed the theory in its reply. The claim, therefore, has been adequately addressed
during the briefing process to permit its consideration on summary judgment.
The court finds that the summary judgment record simply does not present facts that
could support a claim under the LUTPA. Shelter does not identify any established public
policy that has been violated, and there is no evidence of an effort by ACHC to engage in
deception of any kind. ACHC modified the proposed joint check agreement by adding
language that, quite reasonably, limited its liability to the total amount of the bid acceptance
agreement. ACHC then transmitted the writing to others, and it eventually was received by
Shelter. Shelter was not prohibited from seeing the (modified) surety agreement before it
began to ship lumber and, so long as it stayed within its own bid amount, it would be fully
guaranteed by the instrument.
The parties reasonably disagree regarding the effects of the joint check agreement and
the limiting language. There may have been miscommunication or misunderstandings
involved, but there is no evidence of fraud or the degree of misconduct that would be
required to allow a verdict in favor of Shelter on a claim under the LUTPA. ACHC is
entitled to summary judgment dismissing the LUTPA claim.
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Shelter’s Claim Against Ganga
The Louisiana Private Works Act allows certain suppliers a claim against the owner
of a construction project to secure payment of obligations arising out of their performance
of work on the project. Among the persons allowed a claim are those who sell movables to
a contractor or sub-contractor, if the movables become component parts of the immovable
or are consumed during the project. La. R.S. 9:4802. Any person to whom a privilege is
granted under that statute may give notice to the owner of an obligation owed the person in
connection with the project. La. R.S. 9:4822(K). When that notice has been given to the
owner, the owner is required to notify the seller/claimant within three days of the filing of
a notice of termination of the work or the substantial completion of the work. Section
4822(L).
Shelter alleges in Count V of its Amended Complaint that it provided notice to Ganga
(the owner) of its contract with subcontractor Cratus and Cratus’s nonpayment. ¶ 41.
Unbeknownst to Shelter, a notice of substantial completion of the project was later filed on
August 3, 2012. ¶ 45. Ganga did not notify Shelter at any point that the notice of substantial
completion had been filed. ¶ 46. Shelter did not become aware of the notice of substantial
completion until August 31, 2012, at which point it did file a lien under the Private Works
Act. ¶ 47. Shelter alleges that Ganga’s willful failure to notify it as required by the statute
was an unfair or deceptive act or practice. It also alleges that Ganga contested the Shelter
lien as untimely. ¶¶ 48 - 49. Shelter alleges that Ganga is liable under the LUTPA for

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relying upon its deceptive act to build a defense to lien rights Shelter might otherwise have
against Ganga. ¶¶ 50 - 51.
Ganga’s discussion of this claim in its Motion for Summary Judgment contends that
this claim can be resolved based solely on the face of the pleadings, and no summary
judgment evidence is cited. But Ganga’s argument, as well as the response by Shelter, go
beyond the allegations in the Amended Complaint and discuss whether (1) the lien was
actually timely filed despite the notice and (2) other alleged reasons that Shelter’s lien was
deficient. The court cannot decide a case based on arguments by counsel in a memorandum
that are not supported by competent summary judgment evidence. Ganga began its attack
on this claim by stating that it was confined to the pleadings, in the nature of a motion to
dismiss under Fed. R. Civ. Pro. 12(b)(6), so the court will consider only allegations in the
Amended Complaint.
Shelter alleges that Ganga violated an express statutory directive that it provide
Shelter notice of substantial completion of the project so that Shelter could timely assert any
lien rights. Ganga is alleged to have known that Shelter had a claim for a significant amount
of money due for lumber used on the project, but Ganga did not give Shelter the statutorily
required notice, and it then relied on Shelter’s delay in filing a lien to defend against it. The
court finds that these allegations are sufficient to state a plausible claim under the LUTPA
that survives review of the pleadings and must be resolved by more substantive means such
as a motion for summary judgment that includes competent evidence regarding the
underlying facts. For now, the claim against Ganga survives.
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Conclusion
Shelter’s Motion for Partial Summary Judgment (Doc. 31) is granted by holding
that ACHC is bound as a surety under the joint check agreement up to the amount of
$92,291. The Motion for Summary Judgment (Doc. 28) filed by ACHC and Ganga is
granted in part by dismissing the claim against ACHC under the LUTPA and is denied in
all other respects.
THUS DONE AND SIGNED in Shreveport, Louisiana, this 26th day of June, 2014.

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