84 LUMBER COMPANY, L.P. v. GREGORY MORTIMER BUILDERS et al
Filing
245
MEMORANDUM OPINION re 234 MOTION for Judgment Pursuant to Federal Rule of Civil Procedure 52(c)filed by 84 LUMBER COMPANY, L.P. Signed by Magistrate Judge Lisa Pupo Lenihan on 02/23/17. (jer)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
84 LUMBER COMPANY, L.P.
Plaintiff/Counter-Defendant
v.
GREGORY MORTIMER BUILDERS,
et al.
Defendants/Counter-Plaintiffs
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)
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)
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)
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Civil Action No. 11-548
Magistrate Judge Lisa Pupo
Lenihan
ECF No. 234
MEMORANDUM OPINION ON PLAINTIFF’S MOTION FOR JUDGMENT
PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 52(c)
I.
SUMMATION
For the reasons set forth below, the Court will grant Plaintiff’s Motion for Judgment Pursuant
to Federal Rule of Civil Procedure 52(c), ECF No. 234, as Defendants have failed - in their
pleadings and evidentiary filings, and through evidence and argument presented during the
limited-issue bench trial held on November 1st and 2nd, 2016 (the “Bench Trial”)1 – to meet the
requisite evidentiary standards for a prima facie showing of the element of reasonable reliance as
to any of their counterclaims sounding in fraud or negligent misrepresentation . In so holding,
the Court observes that it has granted Defendants great leeway in continuing judicial
consideration of these counterclaims, including, e.g. (a) conditionally accepting - in the interest
1
See generally ECF No. 230-231 (Notices of Filing of Official Transcripts).
1
of efficiency and economy, in hopes of advancing the parties’ understanding and resolution of
this protracted litigation, and for purposes of the limited-issue bench trial – all other elements of
fraud or negligent misrepresentation despite current serious inadequacies in the evidentiary
record and, indeed, evidence suggesting the unlikelihood of their ultimate establishment; and (b)
considering claims and last-minute theories of tort liability despite significant questions of
waiver and/or estoppel. At bottom, no matter how vigorously or inventively Defendants may rub
the brass lamp of their residential-development relationship with Plaintiff, tort liability is not a
genie which can be summoned by incanting even egregious breaches of contract; nor is it one
whose scope of recovery may be attained without reasonable reliance, as it is just that reliance
which must supply the causation element in a misrepresentation cause of action.
II.
RELEVANT FACTUAL AND PROCEDURAL HISTORY
The extensively documented factual and legal history in this case arising from disputes
between the parties with regard to (a) construction material purchases and (b) sub-contracted
construction of housing in Defendants’ multi-duplex residential developments – Timberlake
Village (hereafter “Timberlake”) and Cedar Creek – located near Deep Creek Lake, in Garrett
County, Maryland was most recently summarized by this Court in its October 11, 2016
Memorandum Opinion on Contractual Damage Limitations (the “Damage Limitations
Opinion”), ECF No. 214.
The determination of Defendants’ ability to make out the elements of their tort-based
counterclaims was rendered more critical to the parties’ accurate assessment of their litigation
positions by this Court’s October 11, 2016 Opinion. In the Damage Limitations Opinion, ECF
No. 214, and subsequent January 3, 2017 Order, ECF No. 237, this Court concluded that the
2
parties’ contractual limitation of damage provision of the Subcontract Agreements’ Paragraph
15, was an enforceable and independent provision, precluding “any consequential, indirect,
exemplary or punitive damages of any type” as to those contract claims encompassed by the
parties’ clear language, i.e., damages “under this paragraph” and therefore those claims related
to/flowing from “defects in workmanship or materials.”2 See ECF No. 214 at 1-2, ECF No.
237.3
2
The Court again notes that the Damage Limitations Opinion addressed contractual damage
limitations, and their applicability to breach of contract claims. See ECF No. 214 at 2 (“[T]he
limitation provisions remain enforceable as to those contract claims encompassed by the parties’
clear language . . . .”) (emphasis added). That is, the Opinion addressed the issues raised for and
in the pertinent briefing. It was not revisiting or revising prior determinations, such as its prior
denial of Plaintiff’s Damages Motion, ECF No. 144, on grounds including rejection of Plaintiff’s
contention that “parties to whom Plaintiff may be liable under the pending claims are not entitled to
consequential, exemplary, punitive, or compensatory damages . . .”. See Memorandum Opinion on
the Parties’ Multiple Motions and Cross-Motions for Summary Judgment, ECF No. 166 at 26-27; id.
at n. 26 (contrasting Plaintiff’s Damages Motion, “asserting that because the Subcontract Agreements
state that ‘in no event’ is 84 Lumber liable for any damages other than repair or replacement costs,
Defendants are constrained from other damages under fraud or any other civil theory of liability”,
with ECF No. 166’s discussion of interpretation and “non-applicability to remaining potential tort
liabilities”); id. (“The Court again directs the parties to the actual language of Paragraph 15, which
expressly limits ‘liability hereunder’ to the ‘extent of 84’s negligence’ and its obligations to ‘repair or
replacement of any defective or nonconforming [w]ork’ and precludes ‘any consequential, indirect,
exemplary or punitive damages of any type in connection with any claim under this paragraph.’” ).
Compare Defendant’s Brief in Opposition to Plaintiff’s Motion for Reconsideration, ECF No.
232 at 17 (asserting that the language “in no event”, contained in contract Paragraph 15,
effectively rendered “the limitation of damages” provisions of Paragraph 15 “applicable to the
entire Agreement”), id. at 21-23 with Damage Limitations Opinion, ECF No. 214, at 2, 12-13,
22.
Defendants’ Motion to Reconsider the Memorandum Opinion on Contractual Damage
Limitations, ECF No. 225, was recently denied by this Court. See Order, ECF No. 237.
3
In support of that Motion, Defendants asserted as breaches of contract new factual allegations
included during the November, 2016 Bench Trial and in Defendants’ later Memorandum in
Opposition to Judgment, ECF No. 238, as fraud/negligent misrepresentation torts. See
Defendants’ Supplemental Memorandum of Law in Support of Motion to Reconsider, ECF No.
229, at 3 (asserting new theories of liability - stemming from factual allegations of Plaintiff’s
failure to “provide competent supervision . . ., proper insurance . . . and a site superintendent” 3
As explicated in previous Opinions, Defendants’ Second Amended Counterclaim, ECF No.
44, theories of tort liability were:
(a) claims by each of the Defendants for (i) unspecified negligent misrepresentations
(implicitly and by incorporation those misrepresentations made to Mortimer and underlying
Count I), and (ii) fraud/intentional misrepresentation/concealment expressly with regard to
Summer, 2009 representations to Mortimer regarding faulty construction issues and Plaintiff’s
intent to correct/purported correction of them (Counts II and III, respectively);4 and
as providing grounds for a holding that “paragraph 15’s consequential damages limitation does
not apply to [Defendant]’s claims for breach of contractual obligations outside the scope of
paragraph 15’s warranty”) (emphasis added). The Court determined it unnecessary to address the
issue of waiver. It concluded that “assuming any breach of contract as now alleged – the nexus
between it and any possible harm to Defendant under the contracts would be a defect/delay in
materials or workmanship that could have been prevented, ameliorated, or cured. That is,
Paragraph 15’s limitation of damages addresses – as contractual damage limitations do - the
harm for which Plaintiff is liable, not the conduct. As Defendant has specified no new breach of
contract claim outside the scope of Paragraph 15, the Court will not issue an advisory order . . . .”
ECF No. 236 at 9-10.
See also, infra n. 8 (noting Defendants’ Amended Pretrial Statement , ECF No. 224, stating
that “misrepresentation alleged is as to the work force, and the contractual obligations alleged are
as to supervision and workmanship guarantees”); Defendants’ Combined Statement of Material
Facts, ECF No. 153 (asserting material breach of contracts “by failing to provide competent
supervision as required by General Condition 1” and following with subparagraph listings of the
resultant construction defects at each unit); further discussion, infra.
See Damage Limitations Opinion, ECF No. 214, at n. 2 (quoting Defendants’ Combined
Statement of Material Facts, ECF No. 153, at 20 (stating that in Spring and Summer 2009,
Mortimer received “numerous reports of leaks at units at both Timberlake and Cedar Creek” and
notified 84 Lumber, and that Mortimer “retained multiple engineers and construction professionals
to investigate the issues”, made written demands for repair and 84 Lumber “repeatedly
represented that [it] would correct all construction defects”); id. at 21 (recounting that in August
through mid- September, 2009 84 Lumber retained other construction contractors to investigate
and repair the defects and falsely represented they were corrected); id. at 22 (continuing
chronology with assertion that “[d]espite the numerous leaks and other defects apparent at that
time” Mortimer paid Plaintiff in full for the subcontracts on Buildings 8 and 12, but withheld
subcontract payments on other buildings)). Cf. Defendants’ Memorandum of Law in Opposition
to Partial Summary Judgement (“Defendants’ Memo of Law in Opposition to PSJ”), ECF No.
4
4
(b) claims by Mortimer for fraud in the inducement (Count I) by both (i) misrepresenting that
improper CCA charges made in 2007 by a subsequently-fired Maryland manager would not
recur5 and that a Fall 2008 internal audit was conducted and showed no improper CCA charges,6
156, at 6 (asserting that Plaintiff’s “August and September 2009” multiple representations that it
corrected and would correct all construction defects were false).
5
See Damage Limitations Opinion, ECF No. 214, at n. 4 (quoting Defendants’ Combined
Statement of Material Facts, ECF No. 153, at 4-5 (“Following the execution of the settlement
agreement, [84 Lumber employees] verbally represented to Mortimer that there were no other
improper charges to [the CCA] account and that there would be no further improper or excessive
charges to [it].”); Defendants’ Memo of Law in Opposition to PSJ, ECF No. 156, at 4 (“[These]
representations . . . . were . . . false in that immediately following the settlement agreement and
the representations, 84 continued to improperly charge Mortimer’s account on the [prior]
residential] project.”)). See also Defendants’ Combined Statement of Material Facts, ECF No.
153, at 12 (“During August 2008, before Mortimer executed the Subcontractor Agreements for
Timberlake Building 11 and Cedar Creek Buildings 1 & 2, 84 Lumber employees informed
Mortimer that 84 Lumber . . . was manipulating inventory and intentionally overcharging,
double-billing and failing to properly credit his account.”). Cf. generally, ECF No. 230 & 231
(Mortimer’s Bench Trial testimony regarding multiple conferences with Plaintiff during early
construction and thereafter to review invoices and obtain credits); discussion infra.
6
See Damage Limitations Opinion, ECF No. 214, at n. 5 (quoting Defendants’ Combined
Statement of Material Facts, ECF No. 153, at 12-13 (recounting that on notice from 84 Lumber
employees, “Mortimer then informed 84 Lumber representatives [and] questioned certain
invoices . . . . In early September 2008, [Mortimer met with 84 Lumber representatives who
informed him] the Store Manager . . . . had been fired for theft, . . . 84 Lumber had investigated
Mortimer’s account . . . [and the] audit did not show any wrongful billing or manipulation of his
account”); id. (“On October 1, 2008, Mortimer [received correspondence from Plaintiff stating
that an audit of the Maryland store] did not reveal any manipulation of either the quota system or
inventory [or] any misuse of the invoicing system”)).
See also id. (quoting ECF No. 153 at 14 (stating that Mortimer relied upon 84 Lumber’s
false and misleading assurances that no improper billing or manipulation of his account had
occurred [and] would not have executed the Subcontractor Agreements for Timberlake Building
11 and Cedar Creek Buildings 1 & 2 without these representations) and observing the execution
dates of these contracts, as well as that for Timberlake Building 12, i.e.: the first Subcontractor
Agreement was executed in April, 2008 (Timberlake #8); the second (Timberlake #12) in late
August, 2008; and the additional three (3) in late October, 2008). The Court observes again that
the “late August, 2008” Subcontract Agreement and its relation to an asserted CCA misbilling
audit misrepresentation claim was noted to Defendants in the Court’s Damage Limitations
Opinion.
5
and (ii) misrepresenting that subcontracted work would be performed by 84 Lumber’s national
“install program” construction experts/specialists.7
And these claims remained as set forth above throughout subsequent pleadings, including,
e.g., Defendants’ October 18, 2016 Amended Pretrial Statement, ECF No. 2248 and Amended
See Damage Limitations Opinion, ECF No. 214, at n. 6 (quoting Defendants’ Combined
Statement of Material Facts, ECF No. 153, at 5-6 (“In 2007 and 2008, 84 Lumber represented to
Mortimer that it had experienced and skilled construction experts and specialists that were
capable of constructing homes of the type Mortimer intended to build at Timberlake and Cedar
Creek . . . . 84 Lumber represented to Mortimer that these construction workers were part of 84
Lumber’s “in-house” install program . . . .”); Defendant’s Memo of Law in Opposition to PSJ,
ECF No. 156, at 4 (“84 Lumber’s representations regarding the skill and quality of the workers it
intended to use at [Defendants’] projects were . . . false in that the workers used immediately on
Mortimer’s projects following the representations were . . . local friends and family of 84
Lumber local store employees.”)). See id. (quoting Defendants’ Combined Statement of
Material Facts, ECF No. 153, at 6 (“In reliance on 84 Lumber’s representations regarding the
skill and quality of its ‘install program’ construction crews, and in reliance on 84 Lumber’s
representations that there were no further improper or excessive charges to Mortimer’s account,
Mortimer agreed to expand 84 Lumber’s role from supplier to primary subcontractor.”)).
7
Defendants’ Amended Pretrial Statement, ECF No. 224, provides, as to the “material facts
to be offered at trial”, that:
8
(a) “In 2008, 84 Lumber convinced Mortimer to use its installed sales program by
representing it had qualified and skilled construction workers to perform the work.
Relying on these representations, Mortimer changed the nature of his relationship with 84
Lumber and executed subcontractor agreements retaining 84 Lumber to construct the
entire building shells at Timberlake Buildings 8, 12 & 13. In each of these agreements, 84
Lumber was required to supervise its own employees, to perform all work to meet local
building codes and manufacturer’s specifications, and guaranteed that it would repair or
replace any defective work.” That is, the misrepresentation alleged is as to the
qualification and skill of the work force, and the contractual obligations alleged are as to
supervision and workmanship guarantees.
The Court again notes Defendants’ own statements as to the timing, source and extent of
their knowledge of the construction workers “immediately” engaged on the first-started
(April, 2008 contract) units and their continuation of Subcontract Agreements and entry
into others. It further notes Defendants’ statement of Plaintiff’s contractual supervisory
obligation as extending to “its own employees”. Defendants make no assertion of a
contractual obligation to supervise the project site.
6
(b) “During construction, Mortimer learned from 84 Lumber employees that 84 Lumber was still
manipulating and overcharging his account. After expressing his concerns to senior 84
Lumber officials, 84 Lumber misrepresented that it conducted an audit of Mortimer’s account
and misrepresented that there was no manipulation of his account. Relying on these
representations, in the fall of 2008 Mortimer executed three more subcontractor agreements,
for Timberlake Building 11 and Cedar Creek Buildings 1 & 2.”
The Court again notes Defendants’ statements that Mortimer was made aware – by
Plaintiff’s workers - of alleged overcharges “during August, 2008”, communicated his
concerns to Plaintiff and requested an audit. The audit was then performed by Plaintiff.
Mortimer executed the Subcontract Agreement for Timberlake #12 on August 25, 2008, prior
to receipt of any audit result representations by Plaintiff. Defendants attest results were
communicated orally in a meeting in September, 2008 and by one-page letter received on
October 1, 2008. See Defendants’ Combined Statement of Material Facts, ECF No. 153.
The Court also notes that Mortimer asserts that he executed the October, 2008 Subcontract
Agreements in reliance on representations regarding the audit. He makes no such assertion
as to the August 25, 2008 Subcontract Agreement although it appears from the evidence that
he was aware of misbillings by virtue of both Defendants’ own ongoing invoice reviews and
allegations communicated by Plaintiff’s construction-site employees. It also appears
Defendants were in the process of an inquiry with Plaintiff with regard thereto at the time.
(c) “[D]uring the spring of 2009, Mortimer began receiving complaints about leaks and other
defects at both finished and unfinished units. Mortimer asked local 84 Lumber employees to
fix the issues, and while 84 Lumber attempted some repairs, it did not cure the defects.
Mortimer then escalated his requests to fix . . . . In response, Mortimer received false
promises that all defects would be fixed. Relying on these promises, Mortimer began making
payments on defective, unfinished units. But 84 Lumber did not repair the units. Instead, it
made false representations that there were no more problems at these units . . . . [During 2009
and 2010, despite communications from Mortimer], 84 Lumber failed to correct the defects. .
. . In July 2010, Mortimer asked 84 Lumber to send a construction expert to the buildings to
diagnose defects and recommend repairs. 84 Lumber refused.”
The Court notes Defendants’ Second Amended Counterclaim and Statement of Material Fact
allegations of repair misrepresentations in Spring and Summer 2009, statements of the
retention of their own construction consultants/experts for the purpose of identifying
construction defects and means of repair, ongoing communications with Plaintiff’s
representatives regarding identification of source and correction of e.g., leaks (i.e., materials
vs. installation), and acknowledgment of Plaintiff’s attempts at repair and retention of thirdparty contractors/consultants. Cf. supra text and n. 4 (quoting Defendants’ statements in
Combined Statement of Material Facts, ECF No. 153). The Court notes the distinction
between breach of contract and tort. See discussion, infra.
7
Offer of Proof, ECF No. 222.9
As with its detailing of the nature and basis of Defendants’ tort claims, the Court has
repeatedly recounted its concerns regarding apparent evidentiary insufficiencies as to the
elements of these claims. Hence, e.g., the Court’s direction that Defendants provide an Offer of
Proof, and thereafter an Amended Offer of Proof. Of particular significance, the problematic
nature of a showing of reasonable reliance was highlighted by the Court in its Damage
Limitations Opinion footnotes on Defendants’ factual representations. See supra nn. 4-8; see
also ECF No. 214 at 21-22 (parsing, with reference to previous factually-detailed footnotes,
Defendants’ basis for alleged fraudulent inducement). Despite the continuing inadequacies of
Defendants’ Amended Offer of Proof, ECF No. 222, the Court permitted Defendants an
opportunity to show reasonable reliance through the presentation of evidence and legal argument
during the limited-issue Bench Trial.10
9
Defendants’ Amended Offer of Proof, (ECF No. 222) at 2, sets forth the tort claims as
follows:
Mortimer’s Counterclaim contains three tort counts against 84 Lumber. Count I
alleges that 84 Lumber fraudulently induced Mortimer to enter into the
Timberlake and Cedar Creek Subcontractor Agreements by intentionally
misrepresenting that improper billing was not presently occurring, and would not
occur in the future on his account; that 84 Lumber would use skilled crews that
were part of its “install program” on the projects; and that after Mortimer raised
concerns of improper billing, that 84 Lumber conducted an audit of Mortimer’s
account that showed no improper activity. Count II alleges that 84 Lumber
negligently made these same representations. Count III alleges that in addition to
the fraud set forth in Count I, 84 Lumber intentionally misrepresented that it had
repaired and would repair all construction defects at Timberlake and Cedar Creek.
In light of this history, the Court was quite surprised by Defendants’ recent suggestion
that they should be indulged yet another opportunity. See Defendants’ February 6, 2017 SurReply in Support of Opposition, ECF No. 244, at 3 (asserting that evidence supporting
Mortimer’s reasonable reliance on alleged supervision representations (a new tort theory), “can
10
8
III.
APPLICABLE STANDARDS ON MOTION FOR JUDGMENT UNDER FED.
R. CIV. P. 52(C) AND FOR PRIMA FACIE SHOWING ON TORT CLAIMS
A. Rule 52(C)
As Plaintiff correctly notes, Rule 52(c) provides that this Court may make dispositive
findings of fact based on the burden of proof, evidence admitted and the Court’s credibility
determinations thereof. See Plaintiff’s Memorandum in Support of Judgment, ECF No. 235 at 23. More particularly, “[i]f a party has been fully heard on an issue during a nonjury trial and the
court finds against the party on that issue, the court may enter a judgment against the party on a
claim or defense that, under the controlling law, can be maintained or defeated only with a
favorable finding on that issue.” Id. (quoting Rule 52(c))
B. Tort Claims
As Defendants correctly set forth, the elements of fraud require that they show, by clear and
convincing evidence, that: (1) Plaintiff made a false representation to them, (2) with knowledge
of its falsity or reckless indifference to its truth, (3) and for the purpose of defrauding
Defendants, (4) Defendants justifiably relied on the misrepresentation, and (5) they suffered
compensable injury as a result. See Defendants’ Amended Offer of Proof, ECF No. 222, at 2-3
(citing Hoffman v. Stamper, 385 Md. 1, 28, 867 A.2d 276, 292 (2005)). As they also correctly
set forth, the elements of negligent misrepresentation require them to establish, by a
preponderance of the evidence, that: (1) Plaintiff, owing a duty of care to Defendants,
negligently asserted a false statement; (2) intending that it would be acted upon by Defendants;
be further established at a full trial where the Court hears all the evidence on how 84 Lumber
marketed the install program to its customers, including Mortimer”).
9
(3) with knowledge that Defendants would probably rely on the statement, which, if erroneous,
would cause loss or injury; (4) Defendants justifiably took action in reliance on the statement;
and (5) they suffered damage proximately caused by Plaintiff’s negligence. See Defendants’
Amended Offer of Proof, ECF No. 222, at 3 (citing Lloyd v. Gen. Motors Corp., 397 Md. 108,
135-36, 916 A.2d 257, 273 (2007); White v. Kennedy Krieger Inst., Inc., 221 Md. App. 601, 648,
110 A.3d 724, 751, cert. denied sub nom. White v. Kennedy Krieger Inst., 443 Md. 237, 116
A.3d 476 (2015)). See also Plaintiff’s Memorandum in Support of Judgment, ECF No. 235, at 3
(Plaintiff’s concurring statement that “[i]n the context of their negligent misrepresentation claim,
Defendants must establish reasonable reliance by a preponderance of the evidence; . . . in both
fraud claims, Defendants must prove reasonable reliance by clear and convincing evidence”)
(emphasis in original) (citations omitted).
IV.
ANALYSIS
As preface to its analysis of reasonable reliance on alleged misrepresentations, Plaintiff
appropriately notes the relevance of both (1) Defendants’ extensive business experience in the
local construction industry - over two decades and approximately 200 primarily residential
projects, with revenues in excess of $60 million, and millions of dollars in loans from various
banks; and (2) Defendants’ (a) own inquiry as to construction materials invoicing
misbillings/improprieties, and (b) own inquiry and retention of third-party experts/consultants as
to construction defects and repair. See ECF No. 235 at 5-7 (citing to specific portions of
Mortimer’s Bench Trial testimony). See also discussion supra, including nn. 4-8, and infra. Cf.
ECF No. 235 at 10 (quoting Mortimer’s testimony that “in construction, there’s always issues”);
id. (noting that “where the means of knowledge are open and at hand or furnished to the [relying
10
party] . . . and no effort is made to prevent the [relying party] from using them, and especially where
the [relying party] undertakes examination for himself, he will not be heard to say that he has been
deceived to his injury by the misrepresentations of the [inducing party]”) (quoting Piper v. Jenkins,
113 A.2d 919 (Md. 1955)). See further discussion, infra.
A. Fraudulent or Negligent Misrepresentations as to Improper Billings under the
Commercial Credit Agreement and Plaintiff’s Audit
As noted supra, Defendants’ Second Amended Counterclaim basis for their tort claim(s) on
billing misrepresentations are: misrepresenting that (a) improper Commercial Credit Agreement
(“CCA”) charges made in 2007 by a subsequently-fired Maryland manager were not
recurring/would not recur and (b) a Fall 2008 internal audit was conducted and showed no
improper CCA charges. See ECF No. 44. Defendants cannot maintain a tort action requiring
reasonable reliance on either misrepresentation where none was justifiable and/or even
evidenced.
As noted supra, Defendants assert there were misbillings related to construction of
Mortimer’s Holy Cross residence both leading up to and immediately following the parties’
October, 2007 settlement agreement, i.e., prior to entry into the April, 2008 Subcontract
Agreement. Their evidence is that Mortimer and his spouse were (a) well-acquainted with the
particulars of Plaintiff’s CCA invoices over years of extensive business dealings, (b) regularly
reviewing those invoices (governed by the parties’ 1997 CCA) and identifying
erroneous/disputed charges, (c) discussing invoices with Plaintiff’s representative(s), and (d)
having payments due adjusted.11 In other words, Defendants were not relying on asserted
11
See ECF No. 235 at 8-9 (noting evidence from Bench Trial that Mortimer read and understood 84
Lumber’s invoices, met with Plaintiff’s manager Uphole to review them and point out misbillings,
and negotiated credits on materials); id. at 9 (observing that negotiation exhibits an absence of
11
“misrepresentations”/promises that there would be no further improper CCA charges, but were
independently reviewing and seeking correction of those charges. This, of course, was not only
Defendants’ actual conduct, but the reasonable business conduct of a professional residential or
commercial developer, particularly one of Mortimer’s years and extent of experience. And
Defendants’ evidence is that they continued to review their construction materials bills prior to
paying them during 2008 and 2009.12 Defendants allege that an increased volume of invoice
documents affected their ability to “catch mistakes” or alleged deliberate premature or
reliance); Plaintiff’s Reply Brief in Support of Motion, ECF No. 241, at 3 (noting evidence regarding
Defendants’ familiarity with Plaintiff’s invoices, monthly/regular invoicing in the same format over
the course of the business relationship, testimony of review by Defendants and/or Mortimer’s spouse,
and Mortimer’s frequent communications/negotiations with Plaintiff regarding billings).
See also ECF No. 235 at 7 (“In the 2008 to 2009 time frame, Mortimer spent between
$80,000.00 and $200,000.00 per month at the 84 Lumber store in Oakland, Maryland.”) (citing Trial
Transcript Day 1, pg. 88:7-10); ECF No. 231at 21-22 (Mortimer’s trial testimony that as a general
contractor he’s received probably thousands of material invoices, reviewed them, and was routinely
not paying “the amount billed” on statements from Plaintiff because they included billings that were
improper); id. at 28-29 (testimony acknowledging Mortimer’s experience with reviewing invoices
and noticing mistakes, and that his ability to catch them varied by number of invoices received that
month, e.g., “you should be able to find mistakes” with 100 invoices “to go through” but “it’s much
more difficult to determine all the improper invoicing” in a month when you have ordered a lot of
materials and have 500 invoices); id. at 29 (“So I paid for invoices that I did not see [were] improper
at the time.”); id. at 30-31 (testimony that “[a] lot of times” Mortimer received invoices for work not
yet started/completed, which was “easily” seen, and he called Plaintiff to correct/issue credit); id. at
29-30 (testimony that Mortimer had meetings with Plaintiff’s personnel in various positions, the
frequency of which depended on “how bad [Mortimer] complained about particular invoice issues,
and that he “always went to the next level” when he “felt [he] wasn’t getting an honest response”).
See generally ECF No. 230 (Mortimer’s extensive first day Bench Trial testimony as to billings).
Cf. ECF No. 230 at 53 (trial testimony that following 2007 settlement, Plaintiff told Mortimer he
“would not have to spend [his] time or worries on” materials misbillings); id. at 79 (testimony that
Mortimer’s wife “did the billing” and went over the CCA materials statements with him).
See, e.g., ECF No. 230 at 80-81 (Mortimer’s testimony that the amounts billed were “never
accurate” and he and his wife spent a lot of time deciphering charges and determining what was
duly owed for delivered materials, and Mortimer negotiated with Plaintiff “every month” at “the
store level” a “credit back [of] improper charges” and “agreement what was to be paid that
month”).
12
12
misbillings.13 But this simply does not turn a breach of contract under the CCA into liability for
tortious misrepresentations on which Defendants reasonably relied. Defendants’ evidence
indicates that they did not (nor could they reasonably have) consider their decade-long CCA
business relationship with Plaintiff to have - by contract terms or representations of honest
conduct/intent – ever abrogated any further responsibility to engage in their customary billings
review. To the contrary, the element of “reasonable reliance” encompasses the essence of its
adjective.14 The Court observes, but does not incorporate as necessary to its holdings, that the
record indicates Defendants were making business decisions to continue their relationship with
Plaintiff despite awareness of misbillings, and ongoing invoice negotiation and correction
issues.15
As to the store-wide “broad” audit requested by Mortimer in August, 2008 and conducted by
Plaintiff (assertedly improperly), with its outcome reported to Mortimer: the record indicates that
See supra & n. 11-12 (discussing (a) Defendants’ general awareness of the occurrence of
mistakes in commercial billings and Defendants’ construction business, and corresponding
material purchase, expansion and (b) Defendants’ specific ongoing materials billing review
practices). The Court notes that Defendants apparently elected to continue their own invoice
review rather than, e.g., obtain assistance in that aspect of their business expansion. See, e.g.,
ECF No. 230 at 79 (trial testimony that person in Defendants’ organization reviewing the billings
was Mortimer’s spouse); id. at 71 (testimony that Mortimer and his spouse “looked through as
much as [they] could” to verify there was no improper billing and they “were very upset” with
billings for materials which hadn’t yet been supplied, which “happened regularly” and was
credited back), id. at 90 (testimony that Defendants “expend[ed] company resources attempting
to determine whether bills were proper”).
13
14
The hope and expectation of both parties to business dealings is that they will be dealt with
honestly and fairly in accordance with their contractual undertakings; the corollary practice of
both parties is that they nonetheless exercise reasonable responsibility in the affairs of their own
business enterprises.
15
See ECF No. 231at 34-35 (testimony that Mortimer continued contractual relationship with
Plaintiff while reviewing invoices and communicating/meeting about misbillings because he was
busy building and opening a Dairy Queen restaurant business at the same time).
13
Defendants entered into another Subcontract Agreement on August 25, 2008. This apparently
occurred in the interim between Mortimer’s (a) independent ongoing awareness of CCA
misbillings and monthly negotiations/adjustments, and being told – “during August” by
Plaintiff’s own employees at Defendants’ construction site – of alleged improper materials
charges (see supra, n. 5); and (b) obtaining, in a September, 2008 meeting, verbal representation
of the result of Mortimer’s requested “complete audit of the [entire] store”.16 The Court observes
that the first Timberlake Subcontract Agreement was executed in April, 2008; construction
began in Spring; and Defendants’ evidence is of ongoing review and negotiation/credit issuance
on invoices. See generally, discussion supra. It observes Defendants’ testimony that the day
after he received documentation related to alleged misbillings from Plaintiff’s employees at his
construction site, Mortimer drove to Pittsburgh and requested a comprehensive inventory and
invoicing store-wide audit. See ECF No. 230 at 58-59. That Defendants apparently did not elect
to await the results of inquiry arising from information being obtained “during August” and
Plaintiff’s audit – verbally or in writing - before proceeding to enter the Subcontract Agreement
for Timberlake #12 affects the credibility of their assertion that subsequent October, 2008
Subcontract Agreements were entered into in material reliance on audit representations. Cf. ECF
No. 230 at 151 (testimony that work on 3-4 of the projects was started before the subcontracts
were signed); id. at 44-45 (discussing approximately month-early start to construction of some
Fall 2008 project(s), e.g., Timberlake 11). The Court further notes that despite the audit’s
Compare Defendants’ Combined Statement of Material Facts, ECF No. 153, at 12
(asserting that after notice from 84 Lumber employees “[d]uring August”, Mortimer met with
Plaintiff’s representatives “[i]n early September”) with ECF No. 230 at 58-59, 66 (Mortimer’s
Bench Trial testimony that he met with Plaintiff’s representatives in late September, within a
week prior to the September 29, 2008 letter stating Plaintiff had completed an audit of the store
from June, 2003 to present).
16
14
asserted materiality, Defendants never requested, obtained or reviewed any underlying audit
result information/data, but received a verbal assurance at a restaurant meeting in September and,
on October 1, 2008, a single-page letter.17
The Court expressly noted the chronology of their evidence and the apparently-problematic
matter of foreknowledge and subcontract execution to this claim, see supra (discussing prior
Opinions). Yet Defendants have failed to provide any evidence in support of a contrary
understanding of the time frame of: Defendants’ ongoing invoice-review awareness of
misbillings, Mortimer’s August on-job-site conversations with Plaintiff’s employees regarding
misbillings, his contact with Plaintiff’s representatives at other location(s), Plaintiff’s audit, and
Mortimer’s meeting to receive oral audit representations in September. To the contrary,
Defendants’ Bench Trial testimony on this subject omitted evidence of a contrary relevant timing
of events. See generally ECF No. 230-231. 18
As with their asserted justifiable/reasonable reliance on Plaintiff’s alleged billing
misrepresentations, Defendants simply cannot make out reasonable reliance on Plaintiff’s alleged
audit representations. Defendants (a) had performed, and continued to perform, customary
commercial business review of invoices prior to payment, (b) were ongoingly aware of and
negotiating correction of misbillings, (c) requested an audit but had not yet obtained/reviewed
See supra; ECF No. 230 at 72-73 (Mortimer’s Bench trial testimony that he “did not get
anything on the audit”, just the letter); id. at 71-72 (testimony that assurance was given at
restaurant meeting that “early billing” wouldn’t happen anymore).
17
See ECF No. 231 at 37 (testimony that “[w]hen 84 personnel came on the job site and told”
Mortimer about issues with billings, he “went to the 84 corporate offices and asked them to
conduct an audit”, and met to receive the results in September, 2008”); id. at 39-41 (testimony
that Mortimer relied on representations regarding audit as showing “no improper activity” and
again saw premature invoice charges that were, as before, “credit[ed] back” by Plaintiff on
complaint, and when Mortimer “didn’t reconcile” an invoice he sought resolution with Plaintiff).
18
15
any audit information, and (d) continued and expanded their subcontract relationships with
Plaintiff. The Court again notes that Defendants indicate their continuation and extension of
Subcontractor Agreements was an informed and weighed business decision. For example,
Plaintiff’s participation was generally advantageous, or even necessary, for Defendants to
obtain/ensure bank financing for their expanding construction projects. Moreover, Defendants
testified that Plaintiff’s involvement was essential to a bank’s offering/approving Defendants’
take-over of construction on the bank-foreclosed Cedar Creek project. See generally ECF No.
230-231 (Mortimer’s Bench Trial testimony); ECF No. 230 at 35 (testimony that bank approved
Cedar Creek loan package, when Defendants had numerous other projects, on basis of
subcontracts with Plaintiff).
In sum, Defendants have failed to make a sufficient showing - under the applicable standards
for either fraudulent or negligent misrepresentation - that they justifiably relied on alleged
misrepresentations regarding misbillings or audit results. See Plaintiff’s Brief in Support, ECF
No. 235, at 3, n. 4 (observing that “[a]mong the five elements of negligent misrepresentation is
that a plaintiff must show she justifiably takes action in reliance on the statement”) (quoting
Dynacorp Ltd. v. Aramtel Ltd., 56 A.3d 631 (Md. App. 2012)); id. at n. 5 (“To recover on a claim
for fraud, including fraud in the inducement, a plaintiff must show, inter alia that she not only
relied upon the misrepresentation, but had a right to rely upon it in the full belief of its truth, and
would not have done the thing from which the injury had resulted had not such misrepresentation
been made.”) (quoting Parker v. Columbia Bank, 604 A.2d 521 (Md. App. 1992)); id. at 10
(“[W]here the means of knowledge are open and at hand or furnished to the [relying party] . . . and
no effort is made to prevent the [relying party] from using them, and especially where the [relying
party] undertakes examination for himself, he will not be heard to say that he has been deceived to
16
his injury by the misrepresentations of the [inducing party].”) (quoting Piper v. Jenkins, 113 A.2d
919 (Md. 1955)).
B. Fraudulent or Negligent Misrepresentations as to Use of Skilled Crews as Part of
National Install Program; New Theories of Misrepresentations Based on Failure to
Supervise the Job Site
Defendants appear to now abandon their claim of misrepresentation premised until quite
recently on performance of the contracted work by “friends and family” rather than
subcontractors who were part of an 84 Lumber National Install Program. See Defendants’
Memorandum of Law in Support of Opposition, ECF No. 238 (omitting any argument on this
claim); id. at 6 (acknowledging Mortimer’s testimony that he visited job site and recognized
local subcontractors, and stating “Court noted that this testimony effectively foreclosed any
claim Mortimer might have that he relied on representations that 84 Lumber would use a national
team of installers”). This adjustment in their litigation position is prudent given the record.
As this Court has previously observed in Opinions and Plaintiff largely correctly
reiterates in the Memorandum in Support of its pending Motion: (1) with the exception of
enumerated specifications as to decking (requiring “trained and experienced personnel”), the
Subcontract Agreements contain no language specifying composition of the workforce; and (2)
Mortimer was personally aware of subcontractors who would be and/or were working under the
Subcontract Agreements prior to/or shortly after execution of each (between April and October,
2008). See ECF No. 235 at 13.
Plaintiff well-presents the analysis of the effect of the parties’ contract language with
citations to this Court’s prior Opinions (including the Damage Limitations Memorandum, ECF
No. 214, and Memorandum Opinion on the Parties’ Multiple Motions and Cross-Motions for
Summary Judgment, ECF No. 166), the evidence and case law. See ECF No. 235 at 14-17
17
(explaining that written contract terms (and, alternatively silence/absence as to alleged material
misrepresentations) are relevant to reasonableness of reliance) (citations omitted). See also
Central Truck Ctr., Inc. v. Central GMC, Inc., 4 A.3d 515 (Md. App. 2010).19
Similarly, Plaintiff provides an apt analysis of the evidence and the law as to the timing and
extent of Defendants’ knowledge of the subcontractors employed. See ECF No. 235 at 10
(“Evidence presented at trial revealed Mortimer was far from an absentee general contractor.”);
id. at 11 (“Mortimer was involved in the projects and was present at the job sites to witness work
by subcontractors he knew . . . .”) (quoting Mortimer’s testimony that prior to signing August
[and subsequent] Subcontract Agreements, he observed local subcontractors who worked on his
prior residential construction projects now working at the Subcontract construction site); ECF
No. 231 at 5 (Mortimer’s testimony that “I actually preferred they used local that were qualified
because we are a small community. So, anything we could keep business-wise in the community
was very fair to me, I preferred that, as long as they were vetted and qualified with proper
19
The Court again observes, as does Plaintiff, that the Subcontracts contain no specifications
for the workforce as to other components of the subcontracted work, e.g. framing, windows and
doors, roofing, and siding and exterior trim. Cf. ECF No. 231 at 10 (Mortimer’s testimony that he
could have added language regarding subcontract work performance by a National Install
contractors program had he chosen, but that Plaintiff’s status as a national company comprised
“the backing [he] needed to get [the] assurances to sign [the April, 2008] contract”).
Nor do they contain any provisions regarding individual subcontractor’s licensing/insurance
– a late-raised theory of (a) first breach of contract and (b) then tort liability, which Plaintiff
factually disputes, and which is irrelevant. Defendants have neither (a) proffered evidence of
any individual subcontractor’s breach of professional licensing/insurance or any harm caused to
them thereby, nor (b) pursued licensing/insurance as a basis of tort liability in their post-Bench
Trial pleadings. See ECF No. 235 at 15-16; ECF No. 231 at 16-18 (Mortimer’s testimony that he
had no knowledge/indication of whether subcontractors (as opposed to Plaintiff) were insured or
if they were “vetted” by Plaintiff). Cf. ECF No. 235 at 16, n. 11 (Plaintiff’s attestation of
requirements for subcontractor’s employment by 84 Lumber). See generally Defendants’
Memorandum in Support of Opposition, ECF No. 238.
18
licenses and insurance.”).20 Defendants’ testimony thus indicates they considered the alleged
workforce representations related to the contractual guarantee of work product standards, and not
as material representations of national/non-local subcontractors. See also supra n. 8 (quoting
Defendants’ Amended Pretrial Statement, ECF No. 224, stating, as to the “material facts to be
offered at trial”: “In 2008, 84 Lumber convinced Mortimer to use its installed sales program by
representing it had qualified and skilled construction workers to perform the work.”); ECF No.
231 at 13 (Mortimer’s testimony that if he were unhappy with the personally-observed
subcontract workforce, he could have raised it with Plaintiff then (i.e., in the early months of
initial construction), and would have had he been aware of any construction issues).
Nor can Defendants’ comparatively-recent allegations of Plaintiff’s failure to supervise presented both as breach of contract, see supra, and as an alternative tort claim - avail them in
opposition to Plaintiff’s motion. The Court notes, as in its Memorandum Opinion on
Defendants’ Motion to Reconsider, ECF No. 236, serious considerations of waiver as to new
allegations and theories of liability in an almost six (6) year old litigation. See ECF No. 236 at 910. Moreover, Defendants’ repeated assertions of the breach of contract nature of their new
claims regarding Plaintiff’s supervisory obligations raise considerations of estoppel as well. See
discussion, supra.
See also ECF No. 231 at 10-12 (Mortimer’s testimony that during the first months of
construction at Timberlake, he stopped by and drove by, was ensuring that materials were in
order, spoke to a subcontractor whom he had previously directly employed, and sometimes
swept up/cleaned the work site); id. at 13-15 (Mortimer’s testimony that he was aware of the
subcontract work force before entering the August, 2008 contract and observed “to a large
extent” the subcontractors on those additional projects before entering the October, 2008
contracts).
20
19
Even momentarily setting aside the likely applicability of waiver and/or estoppel, and
considering this asserted tort claim, the Court finds it subject to a ruling in Plaintiff’s favor:
Defendants contradict their own assertions regarding Plaintiff’s representations of
supervisory responsibility. More specifically, Mortimer himself presented somewhat conflicting
testimony regarding whether Plaintiff represented that it was assuming supervision of the entire
construction site (as, e.g, a “project manager”) or supervision of its own Subcontract Agreement
workforce (by, i.e., a “site superintendent” as referenced in the parties’ contracts). See ECF No.
230 at 32 (Mortimer’s testimony that he doesn’t recall if Guthrie ever said Mortimer “didn’t need
to hire a project manager when [he] used [the] Install Program”, but “talked to” Mortimer about
having freedom); id. at 28-29 (testimony that Plaintiff represented Mortimer could save the
expense of a project manager and could focus on other projects)21; id. at 49-50 (testimony that
Plaintiff specifically represented to Mortimer during the “early 2008 timeframe” that Guthrie
“was going to manage these projects” and Defendants only learned during Guthrie’s deposition
that he did not); id. at 49 (testimony that Guthrie only came when Mortimer raised issues with
leaks at units).
The evidence indicates that Plaintiff was supervising its own subcontractors (many of
whom were known to, some of whom were previously directly employed by, Defendants).
Defendants’ own evidence indicates that Mortimer was present at/visited the construction sites
and observed the workforce (including those known to him from direct-hire on prior projects and
his long construction dealings in the local community). It also indicates Mortimer interacted with
Cf. Plaintiff’s Reply to Defendants’ Brief in Opposition, ECF No. 241, at 5 (asserting that any
alleged supervision misrepresentations were too vague and/or general to justify reliance asserted, and
that Mortimer did not discuss the details of site supervision with 84 Lumber) (citing First Union
Nat’l Bank v. Steele Software Sys. Corp., 838 A.2d 404 (Md. App. 2003)).
21
20
Plaintiff’s designated supervisor Gary Uphold (with whom Mortimer had a long acquaintance)
and other individuals/employees on location (who were, by Defendants’ assertions, speaking
directly to Mortimer regarding alleged construction materials misbillings and construction
defects). See e.g., discussions of Defendants’ evidence regarding construction sites, supra; ECF
No. 231 at 19-20 (Mortimer’s testimony that during initial project construction and Summer,
2008, he was in contact with Gary Uphole and called him “I don’t know how many times a
week”).22 See also ECF. No. 231 at 116 (Uphold’s trial testimony that during Plaintiff’s
“subcontract scope of work” , Uphold was at both Timberlake and Cedar Creek once or twice
daily “to observe and supervise the subcontractor work”).23
To the extent Defendants’ “national install program” tort claim could now be recognized
as a “failure to supervise the project site” tort claim, Defendants fail to make sufficient showing
of the requisite element of reasonable reliance. First, the evidence demonstrates Mortimer’s
extensive construction experience in the community, presence on the project sites, familiarity
and indeed interaction with at least some number of subcontractor workers, knowledge of and
22
Cf. supra at n. 3 (citing Defendants’ Combined Statement of Material Facts, ECF No. 153
(asserting material breach of contracts “by failing to provide competent supervision as required by
General Condition 1”)).
23
Cf. Plaintiffs’ Memo in Support, ECF No. 235, at 12-13 (“It should have been apparent to
Mortimer—a twenty-year veteran of the construction industry—whether and to what extent the
project sites were supervised and the quality of the workforce. Therefore, reliance on 84
Lumber’s alleged misrepresentations is unreasonable, and Mortimer cannot now say that he was
deceived.”); Plaintiff’s Reply to Defendants’ Brief in Opposition, ECF No. 241 at 3 (“Defendants
did not rely, they independently verified and assented.”).
The Court concurs with Plaintiff’s observation that Gross v. Sussex Inc., 630 A.2d 1156 (Md.
1993), is inapposite. See id. (disputing Defendants’ assertion that Gross, in which a real estate
agent was found to have reasonably relied on the developer’s misrepresentations that proper
permits had been obtain, supports a finding of reasonable reliance by Defendants on alleged
misrepresentations regarding site supervision).
21
contact over the extended construction periods with Uphold as site superintendent of the
subcontract work, and simultaneous absence of contact with Guthrie despite Plaintiff’s purported
express representation that he would be managing the projects. Second, the actual contract terms
are again relevant to Defendants’ reasonable reliance. The negotiated terms indicate Plaintiff’s
responsibility to supervise its own subcontract workers but do not provide that Plaintiff was also
assuming the usual general contractor’s role as project manager. Nor do the Subcontract
Agreements exempt Mortimer from any responsibility for the construction sites other than/until
final “punch list”/walk through. To the contrary, they provide in relevant part:
General Conditions
1. The Subcontractor shall furnish all labor, material equipment, taxes,
insurance, dues, contributions, services, and all other incidentals, including but
not limited to, competent supervision, and tools as are necessary for proper
performance of the Subcontract work described in this agreement . . .
****
6. The Subcontractor and Contract will walk the job together and perform a final
inspection of the work.
7. Subcontractor will complete all punch list items provided at final walk
through.
****
12. Contractor shall only communicate with 84 Lumber’s site superintendent,
and not give instructions or orders directly to 84’s laborers or Subcontractors.
13. Contractor is responsible for coordination of the site, schedule, materials
storage and other trades work.
****
15. 84 guarantees that the Work performed hereunder will conform to the
specifications, complies [sic] with all Laws, and will be free from defects in
workmanship and materials. . . .
See, e.g., ECF No. 230, Bench Trial Joint Exhibits, J2-7 (Subcontractor Agreements) (emphasis
added). See also Plaintiff’s Reply to Defendants’ Brief in Opposition, ECF No. 241, at 4 (“It is
beyond comprehension that a general contractor in the industry for over two decades believes his
sole responsibility on a multi-million dollar project is to do a final walk-trough. As the
22
Agreements suggest, a general contractor has more duties.”); id. (noting that Subcontract
Paragraph 13 provides Mortimer was “responsible for coordination of the site, schedule,
materials storage, and other trades work. . . . The Agreements require Mortimer be a general
contractor, not a customer waiting for a finished product.”) (citing Bench Trial Exs. J2-J7).24
C. Fraudulent Misrepresentations as to Repair of Construction Defects
As discussed at the outset of this Opinion, Defendants’ Second Amended Counterclaim, ECF
No. 44, alleged fraud/intentional misrepresentation/concealment expressly with regard to
Summer, 2009 representations to Mortimer regarding faulty construction issues and Plaintiff’s
intent to correct/purported correction of them. See supra at 4. See also id. at n. 4 (quoting
Defendants’ Combined Statement of Material Facts, ECF No. 153, at 20 (stating that in Spring
and Summer 2009, Mortimer received “numerous reports of leaks at units at both Timberlake
and Cedar Creek” and notified 84 Lumber, and that Mortimer “retained multiple engineers and
24
Defendants’ comparatively recent characterizations of misrepresentations by Plaintiff
include that its “Install Program” was a “turnkey program” in which Plaintiff “would provide the
supervision” and Mortimer “did not need to have a role in the construction”. See ECF No. 230 at
6-7. Defendant’s Bench Trial evidence appeared more generally directed to further development
of an analogy to Waters v. Massey-Ferguson, Inc., 775 F.2d 587 (4th Cir. 1985). See generally
ECF No. 230-231; see, e.g., ECF No. 230 at 29 (testimony that Mortimer was excited to work
with national company which had ability to get work done right and, if it wasn’t, “to fix it”
(rather than Mortimer’s having to “use [his] own resources” to do so); 32 (testimony that
Plaintiff was promoting a “unique” product); 33 (testimony that the Install Program “was a
product”; “[t]hat’s kind of how they pitched it”).
The Court therefore pauses to direct Defendants to its prior analysis of an asserted analogy to
Waters. See, e.g., Damage Limitations Opinion, ECF No. 214, at 12. It further observes that the
Massey-Ferguson factory-made tractor – a self-contained complex product - was under the
exclusive control of the defendant as to both initial and re-manufacture; there was no role for the
purchaser. The factual circumstances of the case sub judice, as discussed extensively during this
litigation - including the communications and interactions between Plaintiff, Defendants, and
their employees and consultants - are simply not analogous.
23
construction professionals to investigate the issues”, made written demands for repair and 84
Lumber “repeatedly represented that [it] would correct all construction defects”); id. at 21
(recounting that in August through mid- September, 2009 84 Lumber retained other construction
contractors to investigate and repair the defects and falsely represented they were corrected)).
As Plaintiff has observed, Defendants’ independent investigations of the construction
defects, and communication/consultations with Plaintiff’s representatives at various levels
regarding the causes, remedies and attempts at repair, are significant to the element of reasonable
reliance. See ECF. No. 235 at 10 (noting that under Maryland law where one “undertakes
examination for himself, he will not be heard to say that he has been deceived to his injury by the
misrepresentations . . . .”) (quoting Piper v. Jenkins, 113 A.2d 919 (Md. 1955)).
It is beyond possibility that Defendants reasonably relied on “misrepresentations” about the
existence and remediation of construction issues, such as leaks, where: (a) Mortimer personally
observed or was notified by site workers of defects and was actively engaged in ongoing
communication with Plaintiff regarding particular defects; (b) Defendants and Plaintiff were on
site and repairs were attempted; and (c) both parties brought in inside and/or outside
counsultants/experts, and discussed possible sources of the construction problems (e.g., materials
vs. installation). See, e.g., ECF No. 231at 46-47, 52 (Mortimer’s testimony recounting
communications with Plaintiff beginning when leaks occurred (which he first observed in
Spring, 2009), that Plaintiff “brought some people in” and “they were trying to fix it” over a
period of 18-20 months); id. (“They brought in other contractors. So there were multiple
different people they brought in to fix these problems.”); id. at 47 (testifying, as to recurrence of
leaks, that “when we saw the leaking [perhaps “a few months” after Plaintiff said it was fixed],
we would notify the store . . . and they would come in and address those issues); id. at 47-50
24
(testimony that “in many instances” Plaintiff undertook repair endeavors it promised and that it
brought in consultants and engineers with regard to construction problems); id. at 53-54
(Mortimer’s testimony that he “didn’t just rely on” Plaintiff but “allowed” Plaintiff’s “store
level” employees a “reasonable amount of time”, i.e., a “couple months” and “a couple times” to
repair leaks and, “when they couldn’t fix them”, Mortimer “went up [with Plaintiff’s higher-level
employee(s)] to several different crews to try to fix these leaks through a period of time”); id. at
54-55 (testimony that during Spring and Summer 2009 Mortimer promptly reported leaks he
observed and was given repeated assurances that Plaintiff would bring in proper professionals to
fix them); id. at 58 (recounting, as an example, leak that could have been installation or
manufacturing problem, in which “everyone thought it was the doors at the time” so Plaintiff
“brought the door company out”); id. at 62-63 (testifying that Mortimer had two independent
inspections/observations done “by professional experts” and provided report(s) to Plaintiff).
The Court observes Defendants’ express testimony that Plaintiff made ongoing attempts at
repair, and that Defendants and Plaintiff were undertaking independent inquiry and exchanging
information. See, e.g., ECF No. 230, Defendants’ Ex. G (Defendants’ August 28, 2009 “breach
of contract” letter to Plaintiff documenting construction defects and attaching independent
inspect report/recommendations of Highland Engineering); id. Defendants’ Ex. J (Defendants’
email of January 28, 2009 attaching an independent inspection report from Megco Inspections);
id. at 154 (Mortimer’s testimony that he immediately provided his reports from independent
investigations of defects to Plaintiff to “just kind of help out and give direction and try to fix
these problems”). Plaintiff’s alleged – and substantially evidenced - protracted failure to
successfully repair construction defects to the standard guaranteed under the Subcontract
25
Agreements’ Paragraph 15 gives rise to liability for breach of contract;25 but it does not in the
circumstances of record give rise to a tort of misrepresentation as to which Defendants have
sufficiently shown the requisite element of reasonable reliance.26
V.
CONCLUSION
In the end, although there is substantial evidence that Plaintiff’s performance of its
contractual undertakings was lacking, nothing in this record can serve to convert Plaintiff’s
25
Thus, this ruling on tort claims does not leave Defendants without a meaningful remedy.
Both parties have acknowledged that the cost of bringing the projects into conformity with
warranted standards is substantial. Moreover, an alternative measure of damages from breach of
a warranty concerning the standard of promised contract performance, including construction, is
the difference in fair market value on the contemplated date between the performance as
warranted and as delivered. Cf., e.g., ECF No. 230 at 95 (Mortimer’s testimony that he could not
meet delivery commitments under other contracts owing to Plaintiff’s delays in remediating
subcontract work defects).
Compare Defendants’ Sur-Reply in Support of Opposition, ECF N. 244, at 1 (citing
Lawley v. Northam, 2011 WL 6013279 (D. Md. Dec. 1, 2011)). This case, cited by Defendants
for the proposition that “ home purchasers could rely on a seller’s representations regarding
defects in the home even when they retained a professional inspector to evaluate the defects” is
patently distinguishable. It denied in part a motion for summary judgment, in a home
purchaser’s suit including claims of fraudulent inducement/concealment and negligent
misrepresentation, where defendant vendors, agents, and brokers were aware at the time of sale
that defects in the home could harm its occupants. They had been instructed by the County
agency to correct the property's mold, lead paint, and water nitrates problems prior to occupancy.
And the disclosure statute required the vendor to disclose latent defects that would pose direct
threats to the health or safety of the purchaser/occupant. The passage cited refers to disputes of
material fact as to the extent of information observable and/or obtained from the pre-purchase
“home inspection”. This was contrasted to more extensive home conditions of which evidence
indicated defendants were aware and plaintiffs were not (e.g. their knowledge that the home had
a water filtration system did not resolve defendants’ duty to disclose water nitrate levels; the
inspector’s notation of “moderate” basement mold and damp conditions did not constitute notice
of alleged recurrent black mold conditions in upper living area or house-wide contamination).
The passage primarily presents an extended analogy to Gross, supra, in emphasizing that where
the defects litigated were not so obvious as to conclusively make reliance on representations to
their contrary unreasonable (and plaintiffs’ customary, limited independent pre-purchase home
inspection did not reveal them), defendants were not entitled to summary judgment.
26
26
substandard construction, however substantial, from breach of contract into a tort of
misrepresentation. To the contrary, the evidence indicates that Defendants, sophisticated
developers, knew - throughout their relevant contractual relationships with Plaintiff - what they
were getting and indeed took care to know. Defendants were undoubtedly disappointed in their
hopes; but as to what has been sufficiently supported in the record, they were not misled. Rather
than relying uncritically on Plaintiffs’ statements, communications, and reports, Defendants
made business decisions informed by their own factual reviews and investigations.
For the reasons set forth in this Opinion above, the Court will grant Plaintiff’s Motion for
Judgment on Defendants’ Tort Counterclaims , ECF No. 234, requesting judgment on Counts I
through III of Defendants’ Second Amended Counterclaim, ECF No. 44. Order to follow.
_________________________
Lisa Pupo Lenihan
United States Magistrate Judge
Dated: February 23, 2017
cc: All counsel of record
27
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