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BRT Management LLC v. Malden Storage, LLC

United States District Court, D. Massachusetts

August 23, 2019

BRT MANAGEMENT LLC, Plaintiff/ Counterclaim Defendant,
v.
MALDEN STORAGE, LLC and PLAIN AVENUE STORAGE, LLC, Defendants/ Counterclaim Plaintiffs/ Third-Party Plaintiffs, and BRIAN WALLACE, Third-Party Defendant.

          MEMORANDUM AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

          F. Dennis Saylor IV, United States District Judge.

         This action involves a dispute arising out of construction contracts to build storage facilities. Jurisdiction is based on diversity of citizenship.

         There are three contracts at the center of this dispute. The first was between plaintiff BRT Management LLC, as design-builder, and defendant Plain Avenue Storage, LLC, as owner, for the design and construction of a storage facility in New Rochelle, New York. The second was between BRT, as design-builder, and defendant Malden Storage, LLC, as owner, for the design and construction of a storage facility in Malden, Massachusetts.[1] The third was an earlier contract between BRT and Lynn Storage, LLC, to remodel a building in Lynn, Massachusetts. Plain, Malden, and Lynn are affiliated with one another and with Banner Development, LLC.

         In substance, the dispute concerns the alleged existence of a secret or unwritten agreement to divert funds paid by Plain to BRT (in connection with the New Rochelle project) and by Malden to BRT (in connection with the Malden project) to the Lynn project. BRT and Wallace allege that there was such an agreement, and that the money was used by BRT to pay its subcontractors and suppliers for extra work performed on the Lynn project, or to reimburse itself for payments made to those subcontractors and suppliers for that extra work. Plain and Malden deny the existence of any such agreement, and allege that BRT and third-party defendant Brian Wallace, the sole managing member and principal of BRT, converted a total of $327, 282 from them. They further allege that BRT and Wallace repeatedly submitted fraudulent sworn statements and pay applications to induce and conceal the conversion of funds.

         Wallace has moved for summary judgment on the third-party complaint brought by Plain and Malden and Plain and Malden have moved for partial summary judgment on their claims for conversion and fraud. For the following reasons, both motions will be denied.

         I. Background

         Except where otherwise noted, the following facts are set forth in the record and are undisputed.

         A. Factual Background

         BRT Management LLC is a Massachusetts limited liability company. (Compl. ¶ 1; First Am. Counterclaim ¶ 3). Brian Wallace, a resident of Massachusetts, is the sole managing member and principal of BRT. (Wallace SOF ¶ 4; First Am. Third-Party Compl. ¶ 4).

         Banner Drive Storage, LLC is a Delaware limited liability company. (Compl. ¶ 4). Gary Delaney is the former president of Banner Storage Group, LLC, a limited liability company, and apparently has a management role at Banner Drive Storage. (Delaney Dep. at 20).[2]

         Plain Avenue Storage, LLC and Malden Storage, LLC are Delaware limited liability companies. (First Am. Counterclaim ¶¶ 1-2). Plain and Malden are affiliated with Banner. (Defs. SOF ¶ 3).

         William “Bill” Henry is the President of Banner Development, LLC and functioned as the project executive for the New Rochelle and Malden projects. (B. Henry Dep. at 27; B. Henry Aff. ¶ 2). Lori Radcliff is the project coordinator at Banner who was responsible for payment processing on the New Rochelle and Malden projects. (Radcliff Dep. at 19-21).

         1. Lynn Project

         Banner and BRT first became involved in 2014 when they contracted to remodel a building in Lynn, Massachusetts, in order to convert it into a storage facility. (B. Henry Dep. at 47-48; Wallace Dep. at 38-39). The owner of the facility was Lynn Storage, LLC, a Banner affiliate. BRT was the design-build contractor.

         On February 18, 2015, Bill Henry of Banner sent an e-mail to Brian Wallace of BRT with a final log of submitted change orders-that is, a list of changes to the scope of work from the original contract-for the Lynn project. The changes were numbered 16 through 26 and had a total cost of $478, 171. (Defs. Ex. 10). The final change-order log included a “deductive” change order totaling $178, 171, so that the total price was $300, 000. (Id.). On March 11, Henry sent an e-mail to Gary Delaney of Banner stating that he wanted to “review the deductive change order to make sure it closes out all past and future change orders and the project.” (Defs. Ex. 11).

         Plain and Malden contend that Lynn Storage agreed with BRT to settle the change orders for a payment of $300, 000. (Defs. SOF ¶ 11). BRT and Wallace, however, allege that instead, “Banner arranged with BRT to pay BRT for parts of its work on the Lynn Project . . . through two separate construction projects, the Malden Project and the New Rochelle Project.” (BRT and Wallace Resp. to Defs. SOF ¶ 11).

         Change orders 16 through 26 were then executed by BRT and Lynn Storage. (Defs. Ex. 12). Henry testified that “[t]here was no talk about any other funds being exchanged” in addition to the $300, 000 paid for change orders. (B. Henry Dep. at 249-50). He also testified that Delaney suggested that they “provide Brian [Wallace] an opportunity to get” either the New Rochelle or Malden projects. (Id. at 250). Delaney testified that “the understanding” following the discussion surrounding the deductive change order was that Wallace, presumably acting as sole managing member and principal of BRT, would be the general contractor for the New Rochelle and Malden projects. (Delaney Dep. at 23-24).

         The Lynn project was completed on June 10, 2015, when Wallace signed the “Subcontractor Final Payment Certification, Release and Final Lien Waiver, ” representing that BRT was not owed money under the Lynn project general contract. (Defs. Ex. 13).

         On June 18, 2015, Lynn Storage sold the storage facility to Sovran Acquisition Limited Partnership, operating as Uncle Bob's Storage. (Defs. Ex. 14). On June 19, 2015, Wallace signed a “Certification, Waiver of Lien and Release of Claims” to receive a final payment of $241, 701.76. (Defs. Ex. 15). That same day, Wallace signed an “Estoppel Certificate” with Uncle Bob's stating that “[a]ll payments, charges and other costs owed under the General Contract have been paid in full and are current.” (Defs. Ex. 16).

         Uncle Bob's requested that BRT perform extra work on the Lynn facility, to be paid by Lynn Storage. (Defs. Ex. 17). BRT drafted a punch-list of additional work with a total cost of $291, 818.69. (Id.). BRT was paid $322, 081.88 in total for the additional work, including $291.818.69 under the original punch-list plus $48, 988.09 in extra work, less a $18, 725 sale credit reimbursement. (Weinheimer Aff. ¶ 3; Defs. Exs. 18-26).

         2. New Rochelle Contract

         On January 13, 2016, Plain, as owner, and BRT, as design-builder, executed a contract to build a storage facility located at 22 Plain Avenue, New Rochelle, New York. (Defs. Ex. 27). The contract had a guaranteed maximum price of $7, 838, 882 and required substantial completion of the project within 365 days. (Id.). BRT, as design-builder, was to receive a $383, 500 lump-sum payment and up to an additional $783, 888 in design-builder fees, which included overhead and profit on the cost of work. (Id.). The contract was signed by Wallace on behalf of BRT. (Id.).[3]

         Plain and Malden contend that BRT then contracted with Storage Structures Inc., to supply and construct steel for the New Rochelle project. (Defs. Ex. 29 at No. 10). BRT, however, contends that it never executed a written contract with Storage Structures, and instead entered into oral agreements with the company “to perform early design work” for the project. (Wallace Aff. ¶¶ 21-22).

         Plain made three payments to BRT between June 9, 2015, and January 26, 2016. Of those payments, $224, 900 was payment for invoices submitted by BRT for steel from Storage Structures. (Defs. Exs. 29, 31, 33-34, 36, 38, 43). BRT certified and submitted sworn statements and pay applications to Plain on the New Rochelle project representing that $224, 900 had been paid to Storage Structures. (Defs. Ex. 79).

         However, Heath Mulkey, the president of Storage Structures, testified that BRT only paid Storage Structures $39, 900 of the $224, 900 that it had been paid by Plain-that is, $185, 000 less than the total amount for which BRT submitted Storage Structures invoices. (Mulkey Dep. at 34, 36). Ultimately, BRT neither paid the $185, 000 difference to Storage Structures nor returned it to Plain. (B. Henry Aff. ¶¶ 3-5; Defs. Ex. 31 at No. 20).

         Wallace, however, denies that BRT kept the $185, 000. He alleges that BRT instead used the $185, 000 “to pay its subcontractors and suppliers for extra work performed on the Lynn Project” and that it did so “at the request of Banner.” (BRT and Wallace Resp. to Defs. SOF ¶ 45).

         3. Malden Contract

         On February 3, 2016, Malden, as owner, and BRT, as design-builder, executed a contract to build a storage facility located at 490 Eastern Avenue, Malden, Massachusetts. (Defs. Ex. 28). The contract had a guaranteed maximum price of $7, 219, 173 and required substantial completion of the project within 335 days. (Id.). BRT was to receive a $350, 010 lump sum, and up to an additional $721, 917 in design-builder's fees, which included overhead and profit on the cost of work. (Id.). Again, Wallace signed the contract on behalf of BRT. (Id.).[4]

         Plain and Malden contend that on October 9, 2015, BRT contracted with Storage Structures to supply and construct steel for the Malden project. (Defs. SOF ¶ 62; Defs. Ex. 44). BRT alleges that it never executed a written contract with Storage Structures, and instead entered into oral agreements with them “to perform early design work” for the Malden project. (Wallace Aff. ¶¶ 21-22).

         On October 21, 2015, Malden made a payment to BRT, $165, 000 of which was payment for invoices submitted by BRT for steel from Storage Structures. (Defs. Ex. 31 at No. 4; Defs. Exs. 46-48). BRT certified and submitted sworn statements and pay applications to Malden representing that $165, 000 was paid to Storage Structures. (Defs. Ex. 79). On June 14, 2016, BRT sent a check to Storage Structures for $22, 718, which was later returned for lack of sufficient funds. (Defs. Exs. 51-52). On July 21, 2016, BRT again paid Storage Structures $22, 718, in addition to a $30 service fee for the previously returned check. (Defs. Exs. 54-56).

         Wallace admitted that BRT made no additional payments to Malden, and neither paid the $142, 282 difference to Storage Structures nor returned it to Malden. (Defs. Ex. 31 at No. 5; B. Henry Aff. ¶¶ 3-5). BRT denies that it kept the $142, 282. (Defs. Ex. 31 at No. 8). Instead, BRT and Wallace allege that BRT used the $142, 282 “to either pay its subcontractors and suppliers money owed from the extra work performed on the Lynn Project or reimburse itself for payments made to its subcontractors and suppliers for the extra work performed on the Lynn Project.” (BRT and Wallace Resp. to Defs. SOF ¶ 77).

         4. Alleged Verbal Agreement Following the Lynn Project

         The principal dispute is whether there was a verbal agreement between Brian Wallace (of BRT) and Bill Henry (of Banner) concerning the payment of additional fees on the Lynn project. Essentially, BRT and Wallace allege that at the completion of the Lynn project, Lynn Storage was financially unable to pay BRT; that Lynn Storage wanted to defer payments to BRT, so that the project would appear more profitable to its lender and investors; and that there was a verbal agreement between Wallace and Henry whereby BRT would be paid the money it was owed on the Lynn project from funds paid for the New Rochelle and Malden projects. Specifically, the alleged verbal agreement was that BRT would divert payments totaling $350, 000: $185, 000 on the New Rochelle project and $165, 000 on the Malden project.[5]

         Wallace and Audrey Dreyfus (the controller for BRT) testified to the existence of the alleged verbal agreement. (Dreyfus Dep. at 326-38; Wallace Aff. ¶¶ 5, 19; Wallace Dep. at 133-39, 205, 214). Wallace testified that both Delaney and Frank Quigley (who was hired by Banner as the construction manager on the Lynn project and was later hired by BRT to serve as the construction manager on the Malden project), were present at the meeting where the alleged verbal agreement was reached between Henry and Wallace. (Wallace Dep. at 214).

         Plain and Malden deny the existence of any such agreement. Henry and Delaney (of Banner) both testified that there was no such agreement. (B. Henry Aff. ¶¶ 7-8; Delaney Aff. ¶¶ 2-11; Delaney Dep. at 258-59, 267-68).[6]

         In response to and “[r]egardless of [those] denials, ” BRT and Wallace point to the following evidence that (they contend) supports the existence of the verbal agreement:

• “As soon as Gary [Delaney] got on the phone [with Wallace while Dreyfus was present, ] he began to discuss the money owed to BRT from the Lynn Storage job and how dividing it between both Malden and New Rochelle was the best way.” (Defs. Ex. 82, BRTLYNN00588, 12/6/16 E-mail from Dreyfus to Wallace).
• “Other than at the meeting, we did a final walk-through of the [Lynn] project and had that conversation, that [Wallace] was asked to take a haircut and that it would be made up to him on Malden and New Rochelle.” (Delaney Dep. at 25).
• “[A]t that meeting it was told to Brian [Wallace] that they would make-he would be made up-made whole-or made up to him on the Malden/New Rochelle Project.” (Id. at 256-57).
• “I heard conversations about . . . [how] the balance owed [to Wallace on the Lynn project] would be paid on another job.” (Quigley Dep. at 21).[7]
• “Brian [Wallace], I just talked with Gary [Delaney] he said he has arranged to pay the change order with the other work.” (Wallace Ex. F, BRTPAS00033964, ...

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