United States of America for the Use and Benefit of General Supply & Services, Inc. v. Veritas Supply, Inc. et al

Filing 30

ORDER PARTIALLY GRANTING 9 Motion to Dismiss..(Signed by Judge Melinda Harmon) Parties notified.(jdav, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
UNITED STATES OF AMERICA FOR THE §
USE AND BENEFIT OF GENERAL SUPPLY §
& SERVICES INC; dba GEXPRO,
§
§
Plaintiffs,
§
VS.
§
§
VERITAS SUPPLY, INC., et al,
§
§
Defendants.
§

January 27, 2016
David J. Bradley, Clerk

CIVIL ACTION NO. 4:15-CV-771

ORDER AND OPINION
Before the Court is Defendant Kiewit Building Group, Inc.’s (“Kiewit’s) and Defendant
Travelers Casualty and Surety Co.’s (“Travelers’”) Motion to Dismiss (Document No. 9).
Plaintiff United States of America for the Use and Benefit of General Supply & Services, Inc.
d/b/a GexPro (“GexPro”) filed a Response to the Motion to Dismiss (Document No. 11), and
Defendants Kiewit and Travelers then filed a Reply thereto (Document No. 17-1), as well as a
Supplement to their Motion to Dismiss (Document No. 28). After considering these documents
and the applicable law, the Court concludes that Defendants’ Motion to Dismiss is PARTIALLY
GRANTED.
Background
Defendant Kiewit, “as general contractor, entered into a construction contract with the
National Aeronautics and Space Administration (“NASA”) for the construction of a site utility
tunnel and related improvements (the “Project1”) at 2101 NASA Parkway, Houston, Texas
77058 (the “Real Property”)” (Document No. 9 at 1). The Real Property is owned by the United
1

This Project is referred to by Plaintiffs as the construction of a “Tunnel Cable System”
(Document No. 13 at 3).
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States “by and through NASA.” Id. Kiewit “is the principal on a payment bond issued by
[Defendant] Travelers for the Project (the “Payment Bond”).” Id.
Kiewit entered into a contract with Defendant Veritas Supply, Inc. (“Veritas”), whereby
Veritas would provide materials and services for the Project. Id. at 2. Specifically, Veritas would
deliver these materials to Kiewit’s electrical subcontractor for the Project, C.F. McDonald
Electric, Inc. (“McDonald2”). Id. Veritas then entered into an agreement with Plaintiff GexPro,
whereby GexPro would provide services and materials to Veritas. Id.; (Document No. 13 at 3).
According to GexPro, Veritas accepted delivery of services and materials from GexPro, worth
$238,010.63, but has “failed and refused to pay the just amount due” (Document No. 13 at 5).3
GexPro also alleges that “in order to meet the minority business enterprise requirements
and to get the government credits, Kiewit told GexPro that Kiewit was going to insert Veritas as
subcontractor in between Kiewit and GexPro. The sole purpose of Veritas becoming a
subcontractor was so that Kiewit would be paid 8% of the prime contract under the minority
credit regulations by the U.S. government” (Document No. 11 at 4). Kiewit admits that it
“contracted directly with Veritas instead of having C.F. McDonald contract with Veritas in order
to meet Kiewit’s federal prime contract goals related to economically disadvantaged businesses,”
but denies that it made any assertion to GexPro that it was doing so in order to obtain monetary
credit (Document No. 17-1 at 5).
2

McDonald is not a party to this lawsuit.
The materials flowed as follows: Gexpro  Veritas  McDonald  Kiewit (adopted from
Defendants’ Reply, Document No. 17-1 at 4).
3

The contractual relationships can be shown with an  as follows:
NASA

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

Kiewit (Def.)
(General
Contractor)



Veritas (Def.)
(Subcontractor
or Materialman)



GexPro (Pl.)

In its Second Amended Complaint (Document No. 13), Plaintiff asserts several causes of
action: (1) breach of contract by Veritas; (2) a cause of action under the Miller Act against
Kiewit and Travelers on the payment bond; (3) quantum meruit against Veritas, Elvira Ocampo
and Jesus Ocampo4, for the reasonable value of the Tunnel Cable System; (4) violations of the
Texas Trust Fund Act by Elvira Ocampo, Jesus Ocampo, Veritas and Kiewit; (5) a fraud claim
against Kiewit; and (6) an equitable estoppel claim against Kiewit and Travelers (Document No.
13 at 5-12).
Standard of Review
Rule 12(b)(6)
When a district court reviews a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), it
must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true.
Randall D. Wolcott, MD, PA v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011) (citing Gonzalez v.
Kay, 577 F.3d 600, 603 (5th Cir. 2009)). “While a complaint attacked by a Rule 12(b)(6) motion
to dismiss does not need detailed factual allegations, . . . a plaintiff’s obligation to provide the
‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 545 (2007) (citations omitted). “Factual allegations must be enough to
raise a right to relief above the speculative level,” stating a claim that is “plausible on its face.”
Id. at 545, 547 (citations omitted).
“‘A claim has facial plausibility when the pleaded factual content allows the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.’” Montoya
v. FedEx Ground Package System, Inc., 614 F.3d 145, 148 (5th Cir. 2010) (quoting Ashcroft v.

4

The Ocampo’s are “principals, owners, and/or agents of Veritas” (Document No. 13 at 8).
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Iqbal, 556 U.S. 662, 678 (2009)). The plausibility standard is not akin to a “probability
requirement,” but asks for more than a “possibility that a defendant has acted unlawfully.”
Twombly, 550 U.S. at 556.
Rule 9(b)
Federal Rule of Civil Procedure 9(b) provides, “[i]n all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent,
knowledge, and other condition of mind of a person must be averred generally.”
“In every case based upon fraud, Rule 9(b) requires the plaintiff to allege as to each
individual defendant ‘the nature of the fraud, some details, a brief sketch of how the fraudulent
scheme operated, when and where it occurred, and the participants.’” Hernandez v. Ciba-Geigy
Corp. USA, 200 F.R.D. 285, 291 (S.D. Tex. 2001) (citations omitted). “‘In cases concerning
fraudulent misrepresentation and omission of facts, Rule 9(b) typically requires the claimant to
plead the type of facts omitted, the place in which the omissions should have appeared, and the
way in which the omitted facts made the representations misleading.’” Carroll v. Fort James
Corp., 470 F.3d 1171, 1174 (5th Cir. 2006) (quoting United States ex. rel. Riley v. St. Luke’s
Hosp., 355 F.3d 370, 381 (5th Cir. 2004)).
Unlike the alleged fraud, Rule 9(b) allows a plaintiff to plead intent to deceive or defraud
generally. Nevertheless a mere conclusory statement that the defendant had the required intent is
insufficient; the plaintiff must set forth specific facts that raise an inference of fraudulent intent,
for example, facts that show the defendant’s motive. Tuchman v. DSC Communications Corp.,
14 F.3d 1061, 1068 (5th Cir. 1994) (“Although scienter may be averred generally, case law
amply demonstrates that pleading scienter requires more than a simple allegation that a
defendant had fraudulent intent. To plead scienter adequately, a plaintiff must set forth specific
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facts that support an inference of fraud.”); Melder v. Morris, 27 F.3d 1097, 1102 (5th Cir. 1994).
A dismissal for failure to plead with particularity in accordance with Rule 9(b) is treated as
a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78
F.3d 1015, 1017 (5th Cir. 1996).
Discussion
(1) Breach of Contract
This claim is only against Veritas; therefore Kiewit and Travelers do not seek its
dismissal.
(2) Miller Act
Plaintiff alleges as follows:
Kiewit, as principal, and Travelers, as surety, undertook a direct obligation with
the United States of America to provide a payment bond, and for Travelers to act as the
surety for the Project. In accordance with that obligation, Kiewit and Travelers issued a
payment bond securing the debts and obligations of the general or prime contractor,
Kiewit, resulting from the project with the United States. Kiewit is the principal obligor
on the bond. Veritas was a subcontractor to Kiewit as defined by the Miller Act 40 U.S.C.
§3133. Pursuant to the obligation under the Miller Act, 40 U.S.C. §3133, and the terms of
the bond, Travelers and Kewit [sic] have an obligation to make payment of all amounts
due and owing to GexPro who provided services and materials to Veritas. […].
By Travelers’ and Kiewit’s failure to make payment to GexPro of the amounts
due and owing, Travelers and Kiewit have breached their obligations to make payment
under the terms and conditions of the payment bond […].
(Document No. 13 at 6-7). The parties agree that the main issue is “whether Veritas is a
‘subcontractor’ as defined in the Miller Act so that GexPro, as a subcontractor, remains a
beneficiary under the payment bond posted by Kiewit” (Document No. 11 at 5; Document No.
17-1 at 1). Under the Miller Act, a person “that has furnished labor or material in carrying out
work provided for in a contract for which a payment bond is furnished under Section 3131 of this
title and that has not been paid in full within 90 days […] may bring a civil action on the
payment bond.” 40 U.S.C. 3133(b)(1). This relief includes those with a “direct contractual
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relationship with a subcontractor but no contractual relationship, express or implied, with the
contractor furnishing the payment bond.” 40 U.S.C. 3133(b)(2). Therefore, if Veritas is a
subcontractor under the Miller Act, GexPro is entitled to a civil action on the payment bond.
However, if Veritas is merely a materialman under the contract, GexPro is not entitled to
a claim under the Miller Act. The Supreme Court, in Clifford F. MacEvoy Co. v. U.S. for Use &
Benefit of Calvin Tomkins Co., found that the Miller Act
makes clear that the right to bring suit on a payment bond is limited to (1) those
materialmen, laborers and subcontractors who deal directly with the prime contractor and
(2) those materialmen, laborers and sub-contractors who, lacking express or implied
contractual relationship with the prime contractor, have direct contractual relationship
with a subcontractor […]. To allow those in more remote relationships to recover on the
bond would be contrary to the clear language of the proviso and to the expressed will of
the framers of the Act.
322 U.S. 102, 107-08 (1944) (emphasis added). As discussed below, Plaintiff has made relevant
claims that Kiewit misrepresented Veritas’s status as a subcontractor (Document No. 13 at 12).
As the Court is giving Plaintiff an opportunity to re-plead these claims, the Court will not
consider whether Veritas is a subcontractor or a materialman at this time.
(3) Quantum Meruit
In its First Amended Complaint, GexPro alleges that “Travelers is also under an
obligation to pay GexPro the amount due that Veritas and Kiewit have failed to pay” (Document
No. 7 at 6). In response to this claim, Kiewit and Travelers state that Gexpro’s claim against
Travelers based on quantum meruit is preempted by the Miller Act (Document No. 9 at 6). In its
Response, Plaintiff states that its quantum meruit cause of action is only against Veritas, Elvira
Ocampo and Jesus Ocampo (Document No. 11 at 3), but Plaintiff’s Second Amended Complaint
still includes a quantum meruit claim that “Kiewit and Travelers are under an obligation pursuant
to the payment bond to pay GexPro the amount due that Veritas has failed to pay” (Document
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No. 13 at 7-8). It is therefore not clear whether Plaintiff intends to allege a quantum meruit claim
against Kiewit or Travelers.
Regardless, Plaintiff fails to state a claim of quantum meruit against both Travelers and
Kiewit. Plaintiff only includes one sentence relevant to these defendants’ liability. The essential
elements for recovery under quantum meruit are:
(1) valuable services were rendered or materials furnished, (2) to the person sought to be
charged, (3) which services and materials were accepted by the person sought to be
charged, used and enjoyed by him, (4) under such circumstances as reasonably notified
the person sought to be charged that the Plaintiff, in performing such services was
expecting to be paid by the person sought to be charged.
Schuchart & Associates, Prof’l Engineers, Inc. v. Solo Serve Corp., 540 F. Supp. 928, 945 (W.D.
Tex. 1982). Plaintiff has not alleged any of the following elements with regard to Kiewit or
Travelers. Therefore, Plaintiff’s quantum meruit claims against Kiewit and Travelers are
dismissed without prejudice.5 Great Plains Trust Co v. Morgan Stanley Dean Witter & Co., 313
F.3d 305, 329 (5th Cir. 2002).
(4) Texas Trust Fund Act
Plaintiff’s allegations against Kiewit are as follows:
Funds received by Defendants, Elvira T. Ocampo, Jesus Ocampo, Veritas and
Kiewit, on the Project was [sic] utilized for other than the reasonable cost and overhead
of the Project for which the funds were received. The principals of Kiewit and Veritas are
personally liable under the Texas Trust Fund Act, Section 162 of the Texas Property
Code, to the extent they were paid funds on a construction contract and there remains
unpaid a subcontractor on the project. Kiewit is believed to have been paid by NASA
because it claims to have paid the subcontractor, Veritas, all but $63,000.00 of the
subcontract amount of $524,849.00. Moreover, Kiewit issued a joint check on November
20, 2014 for $44,458.23 payable jointly to Veritas and GexPro. It thereby recognized its
liability for GexPro’s unpaid invoices.
Defendants, Elvira T. Ocampo and Jesus Ocampo, are the principals, owners,
and/or agents of Veritas and received funds from Kiewit who received funds from the
Project owners in payment of the Tunnel Cable System provided by GexPro.
5

The Court does not need to consider Defendants’ argument that a quantum meruit claim is
preempted by the Miller Act, due to the sparsity of Plaintiff’s allegations.
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Defendants, Elvira T. Ocampo, Jesus Ocampo, Veritas and Kiewit, intentionally
did not pay GexPro, although they knew that the bills were due and owing.
The funds received by said Defendants on the above mentioned Project was [sic]
misappropriated to the detriment of GexPro.
Veritas, Elvira T. Ocampo, Jesus Ocampo, and Kiewit are Trustees for GexPro by
operation of law and have a fiduciary duty to GexPro.
Funds received by said Defendants on the above-mentioned Project were trust
funds for the benefit of GexPro.
Funds collected by Veritas, Elvira T. Ocampo, Jesus Ocampo, and Kiewit on the
Project was [sic] misappropriated by them while acting in their fiduciary capacity as
Trustees.
(Document No. 13 at 8-9). Defendants argue that GexPro’s claim against Kiewit under the Texas
Trust Fund Act should be dismissed, because “Plaintiffs allegations against Kiewit in Section
VIII of the Complaint are nothing more formulaic recitations of the elements of a cause of action
under the Texas Trust Fund Act” (Document No. 9 at 8). Defendants also argue that
“Additionally, Gexpro’s allegation that Kiewit is a trustee for Gexpro ‘by operation of law’ is a
legal conclusion devoid of any factual showing that Kiewit had control or direction of the trust
funds to which Gexpro claims it is entitled.” Id. at 8-9.
“To prove the misapplication of construction trust funds, the plain language of the statute
require[s] only that (a) a trustee ‘intentionally or knowingly or with intent to defraud directly or
indirectly’ (b) ‘retain[ ], use [ ], disburse [ ], or otherwise divert[ ] trust funds’ (c) ‘without first
fully paying all current or past due obligations incurred by the trustee to the beneficiaries.’” Choy
v. Graziano Roofing of Texas, Inc., 322 S.W.3d 276, 295 (Tex. App. 2009) (quoting Tex. Prop.
Code Ann. § 162.031(a)). The Court agrees with Defendants that Plaintiff’s allegations are
merely “formulaic recitations of the[se] elements.” Twombly, 550 U.S. at 545. Plaintiff does not
provide any detail to its assumption that Kiewit was paid by NASA, or its claim that Kiewit has
paid Veritas. Plaintiff also does not explain how paying sums to Veritas and GexPro constitutes a
misappropriation of funds. It does not follow that Kiewit would pay most of its contractual
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obligation to Veritas, or issue a joint check to Veritas and GexPro, with the intent to deprive
Plaintiff of the funds. Therefore Plaintiff’s claim against Kiewit is dismissed without prejudice.
Great Plains, 313 F.3d at 329.
(5) Fraud
Plaintiff’s allegations of fraud against Kiewit are as follows:
In the alternative, Kiewit’s conduct is fraudulent as to GexPro and the government. First,
Kiewit represented to GexPro that the minority contractor being inserted into the chain of
contract was a subcontractor and not a mere pass through. Kiewit then signed a Material
only contract with Veritas rather than a subcontractor contract but failed to tell GexPro.
GexPro relied on Kiewit’s Miller Act payment bond and would not have extended credit
to Veritas without bond protection, had it known Veritas was not a true subcontractor
who was not going to perform any service whatsoever, all as claimed by Kiewit. Second,
Kiewit intentionally and deliberately mislead the U.S. Government and NASA in order to
obtain the minority credits.
(Document No. 13 at 12). Therefore Plaintiff alleges that Kiewit defrauded GexPro, as well as
the United States Government and NASA. Defendants argue that this fraud claim is not plead
with the specificity required by Rule 9(b) (Document No. 18 at 2). Under Texas law, the
elements of fraud are:
(1) that a material representation was made; (2) the representation was false; (3) when the
representation was made, the speaker knew it was false or made it recklessly without any
knowledge of the truth and as a positive assertion; (4) the speaker made the
representation with the intent that the other party should act upon it; (5) the party acted in
reliance on the representation; and (6) the party thereby suffered injury.
Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009) (citations
omitted). Plaintiff fails to state a claim of fraud as to the United States government or NASA, as
Plaintiff’s claim only includes a conclusory statement regarding Kiewit’s intent, without
including any other elements of fraud.
In addition, Plaintiff’s fraud allegations regarding misrepresentations made to GexPro do
not provide sufficient detail to state a claim. Plaintiff does not state when or where Kiewit made
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the alleged misrepresentation; nor does Plaintiff disclose the members of that conversation.
Hernandez, 200 F.R.D. at 291. Furthermore, Plaintiff does not plead intent, as required under the
fourth prong; nor does Plaintiff allege that the speaker of the misrepresentation knew, at the time,
that Veritas would not be a subcontractor (the third prong). Therefore Plaintiff’s fraud claims are
dismissed without prejudice. Great Plains, 313 F.3d at 329.
(6) Equitable Estoppel
Plaintiff states that “[e]quitable estoppel prevents Kiewit from obtaining the benefits of
GexPro’s expertise and specialized materials on this Project in addition to gaining minority setaside credits, and Kiewit and Travelers should be equitably estopped from denying that Veritas is
a subcontractor as that term is defined in the Miller Act” (Document No. 13 at 12). Therefore
Plaintiff alleges three separate equitable estoppel claims, regarding (1) Kiewit’s receipt of the
materials, (2) Kiewit’s receipt of the minority set-aside credits, and (3) Kiewit and Travelers’
denial that Veritas is a subcontractor.
Defendants argue that this claim is preempted by the Miller Act 6, and that Plaintiff fails
to state a claim for equitable estoppel (Document No. 28 at 5-6). First, the Court finds that the
first two claims should be dismissed, because, generally, “equitable estoppel is an affirmative
defense, not an affirmative claim for relief.” Knapik v. BAC Home Loans Servicing, LP, 825 F.
Supp. 2d 869, 872 (S.D. Tex. 2011). However, equitable estoppel can be used “as a defensive
plea to bar a defendant from raising a particular defense.” Joe v. Two Thirty Nine Joint Venture,
145 S.W.3d 150, 156 (Tex. 2004); Cook v. Smith, 673 S.W.2d 232, 235 (Tex. App. 1984), writ
refused NRE (Nov. 28, 1984) (allowing a plaintiff to “invoke equitable estoppel to prevent an
opponent from pleading limitations, if the opponent, his agent, or representatives make
6

The Court does not need to address this argument, as Plaintiff fails to state a claim of equitable
estoppel.
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representations which induce the plaintiff to delay filing suit within the applicable limitations
period.”). Plaintiff’s third equitable estoppel claim appears to fall into this category, but, for the
reasons below, fails to state a claim.
A party asserting an equitable estoppel claim must show: “(1) a false representation or
concealment of material facts made with knowledge (actual or constructive) of those facts, (2)
with intention that it should be acted on, (3) to a party without knowledge, or means of
knowledge of those facts, (4) who detrimentally relied upon those representations.” In re
Oparaji, No. 10-30968, 2013 WL 889481, at *4 (Bankr. S.D. Tex. Mar. 8, 2013) (citing In re
Perry, 425 B.R. 323, 375 (Bankr.S.D.Tex.2010)). As described above in subsection (5), Plaintiff
does not state that Kiewit made the alleged misrepresentation with the intent that Plaintiff would
act on it, nor does Plaintiff allege that the speaker knew the statement was false at the time.
Furthermore, Plaintiff does not allege that Travelers made any misrepresentation. Therefore,
Plaintiff’s equitable estoppel claims against Kiewit and Travelers are dismissed without
prejudice.
Conclusion
The Court hereby
ORDERS that Defendants’ Motion to Dismiss (Document No. 9) is PARTIALLY
GRANTED. Plaintiff’s quantum meruit claims, Texas Trust Fund Act claims, fraud claims and
equitable estoppel claims are all DISMISSED WITHOUT PREJUDICE.
SIGNED at Houston, Texas, this 27th day of January, 2016.
___________________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE

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