Walter v. Atlantic Builders Group, Inc.

JAMES R. EYLER, Judge. Atlantic Builders Group, Inc., a general contractor, appellee, entered into a contract with Harford County to build a public library. Appellee entered into a subcontract with United Aluminum Window Sales & Consulting, Inc. (“United Aluminum”) to supply, inter alia, wall panels 1 and curtainwalls. 2 United Aluminum issuéd a purchase order to Alply, Inc. (“Alply”) to supply the materials for the wall panels; issued a purchase order to X-Clad, Inc. (“X-Clad”) to supply materials for the curtainwalls; and subcontracted with J & J Installations, Inc. (“J & J”) to install the wall panels and curtainwalls. United Aluminum breached its contract with appellee. ³⁵¹ Appellee filed suit in the Circuit Court for Harford County and obtained a judgment against United Aluminum for breach of contract, and a judgment against Keith A. Walter, appellant, managing agent of United Aluminum, for violation of the Maryland Construction Trust Statute, Maryland Code (2003 Repl.Vol., 2007 Supp.) §§ 9-201, et seq., of the Real Property Article (“R.P.”). 3 The judgment against appellant was based on a finding by the circuit court, after a bench trial, that appellant misused funds received by United Aluminum for the benefit of United Aluminum’s suppliers, Alply and X-Clad.

On appeal, appellant contends the court was clearly erroneous in finding that (1) appellee had sustained damages as a result of a violation of R.P. § 9-201; (2) appellee had not waived its claim for violation of R.P. § 9-201; (3) appellee had not entered into a new contract with Alply and X-Clad, thus releasing appellant from liability; (4) appellee, by requesting a judgment against United Aluminum, had not elected remedies, barring its claim against appellant; and, (5) appellee had proved “knowledge” sufficient to sustain a finding of liability under R.P. §§ 9-201 — 202. Perceiving no reversible error, we shall affirm. Factual Background Appellee and Harford County entered into a contract dated August 8, 2002, pursuant to which appellee agreed to construct the Abingdon Branch of the Harford County Public Library. The contract amount was originally $4,83 9,000.00 but, as a result of change orders, increased to $5,022,256.00.

Appellee entered into a subcontract with United Aluminum dated September 17, 2002, pursuant to which United Aluminum agreed to supply, inter alia, labor and materials for the construction of “metal wall panels” and “glazed aluminum curtain walls.” The contract amount was $775,000.00. ³⁵² United Aluminum issued a purchase order to Alply to supply the materials for the wall panels at a price of $349,886.00 and issued a purchase order to X-Clad to supply the materials for the curtainwalls at a price of $131,098.00, which, as a result of change orders, increased to $138,080.00. United Aluminum entered into a subcontract with J & J to install the wall panels and curtainwalls for $78,000.00 ($33,-000.00 to install the wall panels and $45,000.00 to install the curtainwalls and the glass). The contract between appellee and Harford County provided for monthly progress payments to appellee, subject to a retainage amount, and similarly, the contract between appellee and United Aluminum provided for progress payments to United Aluminum, subject to a retainage amount. The contracts detailed the amount of payments and their due dates.

By letter dated September 29, 2003, appellee advised United Aluminum that it had breached its contract with appellee in failing to provide labor and materials on schedule. After two more default letters, on December 22, 2003, appellee sent a “notice of termination” to United Aluminum, and on January 9, 2004, sent a “notice of termination second and final notice.” Thereafter, appellee dealt directly with Alply, X-Clad, and J & J. The arrangements between appellee and Alply and between appellee and X-Clad were performed to all parties’ satisfaction. Appellee paid Alply $115,000.00, which Alply agreed to accept even though it was owed $159,426.48. Appellee paid X-Clad $31,532.80, which it accepted even though it was owed $39,416.00.

The agreement between appellee and J & J was not performed to the parties’ satisfaction. On June 8, 2004, appellee filed suit against United Aluminum and J & J for breach of contract and against Jeffrey S. Butcher as managing agent for both United Aluminum and J & j, and appellant as managing agent of United Aluminum, for violation of R.P. § 9-201. Subsequently, appellee dismissed the suit against Butcher. During trial, the court entered summary judgment in favor of appellee against United Aluminum in the amount of ³⁵³ $250,000.00.

The motion was expressly unopposed by counsel for United Aluminum and appellant, without prejudice as to appellant. Also during trial, appellee and J & J agreed to a settlement of the claim against J & J. Appellee’s claim against appellant was tried, non-jury. The court found that appellant had violated R.P. § 9-201 and entered judgment against him in the amount of $146,533.00. At all relevant times, appellant was a managing agent of United Aluminum.

We shall include additional facts as we discuss the issues. Discussion 1 At the outset, it is helpful to relate what the parties are and are not claiming. At trial, appellee limited its claim against appellant to breach of trust with respect to funds paid on behalf of two subcontractor suppliers, Alply and X-Clad. The claim did not include associated labor costs.

On appeal, appellant acknowledges that United Aluminum received funds from appellee to be paid to Alply and X-Clad, that some of those moneys were not used for that purpose, and that appellant was the managing agent of United Aluminum. Nevertheless, appellant contends that the court was clearly erroneous in finding that appellee had sustained compensable damages. Under appellant’s analysis, appellee sustained no damages whatsoever and, in fact, enjoyed a gain as a result of the breach of trust. R.P. § 9-201 provides, in pertinent part: (b)(1) Any moneys paid under a contract by an owner to a contractor, or by the owner or contractor to a subcontractor for work done or materials furnished, or both, for or about a building by any subcontractor, shall be held in trust by the contractor or subcontractor, as trustee, for those subcontractors who did work or furnished materials, or both, for or about the building, for purposes of paying those subcontractors. ³⁵⁴ (2) An officer, director, or managing agent of a contractor or subcontractor who has direction over or control of money held in trust by a contractor or subcontractor under paragraph (1) of this subsection is a trustee for the purpose of paying the money to the subcontractors who are entitled to it.

R.P. § 9-202 provides: Any officer, director, or managing agent of any contractor or subcontractor, who knowingly retains or uses the moneys held in trust under § 9-201 of this subtitle, or any part thereof, for any purpose other than to pay those subcontractors for whom the moneys are held in trust, shall be personally liable to any person damaged by the action. Section 9-202 provides that a person liable under the statute is liable to “any person damaged by the action.” The “action,” in context, means retaining or using money held in trust for any purpose other than to pay the subcontractors for whom the money is held in trust. In its oral opinion, the circuit court, in part, stated: I do find and infer that [appellant] did retain or use the monies paid for the subs and were not fully paid, as we have explored through the evidence. In fact, there is corroboration that there is $124,000.00 of monies that is, in fact, unaccounted for.

As to the Statute, it does provide for personal liability to any person damaged. There is no question in my mind the plaintiff company was damaged in this case by the non payment to the subs of all the monies to which they were entitled. To make a long story short, I find that the correct measure of damages in this case is the figure that totals $146,533. It might have been helpful if the story had been a little longer, and the court had explained how it arrived at the amount of damages.

As part of its agreement with Alply after terminating its contract with United Aluminum, appellee paid ³⁵⁵ $115,000.00 directly to Alply. Similarly, appellee paid $31,532.80 directly to X-Clad. As appellant observes, the combined post termination payments approximate the amount of the judgment, and it is possible that is how the court arrived at the amount. Another possible explanation for the amount is to subtract the difference between the total amount of money United Aluminum retained from appellee that should have been paid to X-Clad and Alply, which was $174,875.63 according to appellee’s assertions, see discussion infra, from the total amount appellee paid directly to X-Clad and Alply, which was $146,532.80.

If that difference, $28,342.83, is then subtracted from the total amount that was misapplied, the total is $146,532.80. Regardless, the evidence is sufficient to sustain the court’s judgment. The total price to construct the building, as between appellee and Harford County, was approximately five million dollars. United Aluminum subcontracted with appellee to “furnish and install all glazing, storefront, curtain wall and metal panels” for a contract price of $775,000.00.

United Aluminum issued a purchase order to Alply to supply the wall panels for a price of $349,886.00 and issued a purchase order to X-Clad to supply the curtainwalls for a price of $131,098.00 (later increased to $138,080.00). As previously mentioned, the contract between appellee and Harford County and the contract between appellee and United Aluminum provided for monthly progress payments based on specified work done to the date of the payment. The total contract prices were for fixed sums. Appellee requested its subcontractors, including United Aluminum, to submit a schedule of values for components of work.

Appellee then used those schedules to establish its own schedule of values for components of work. The values and percentage of completion formed the basis of progress payments from Harford County to appellee and from appellee to its subcontractors. Prior to termination of the contract between appellee and United Aluminum, appellee paid a total of $507,082.00 to United Aluminum. It held $56,343.00 in retainage amounts. ³⁵⁶ In the contract between appellee and United Aluminum, the value for the curtainwall materials was $222,500.00.

In the same contract, the value of the wall panel materials was $380,000.00. According to appellant, appellee paid $230,700.00 to United Aluminum solely and $50,000.00 to United Aluminum and Alply jointly for the wall panels, and it paid $67,500.00 to United Aluminum solely and $85,000.00 to United Aluminum and X-Clad jointly for eurtainwalls. According to appellee, it paid $271,650.00 to United Aluminum solely and $50,000.00 to United Aluminum and Alply jointly for the wall panels, and it paid $77,850.00 to United Aluminum solely and $85,000.00 to United Aluminum and X-Clad jointly for curtain-walls. Appellant’s argument with respect to computation of damages is as follows.

First as to wall panels, appellee paid United Aluminum a total of $395,700.00 ($230,700.00 plus $50,000.00 jointly plus $115,000.00 paid after contract termination). The value of wall panels in the contract between appellee and United Aluminum was $380,000.00. The difference of $15,700.00 constitutes the damages with respect to appellant’s breach of trust, as to that supplier. 4 As to curtain-walls, appellee paid United Aluminum a total of $184,032.80 ($67,500.00 plus $85,000.00 jointly plus $31,532.80 after contract termination). The value of eurtainwalls in the contract between appellee and United Aluminum was $222,500.00.

The difference of $38,467.20 constitutes a savings to appellee. 5 Appellee takes a different view of the damages issue. Appellee states that the appropriate measure is to determine, as of the date of termination of United Aluminum’s contract with appellee, the amount paid by appellee to United Aluminum for ³⁵⁷ the purpose of paying Alply and X-Clad, subtract the amounts United Aluminum actually paid to those suppliers, and add amounts paid by appellee to those suppliers post contract termination. Thus, in the case of Alply, appellee asserts United Aluminum retained $113,419.63 out of $271,650.00 that appellee paid to United Aluminum, and $113,419.63 constitutes damages. In the case of X-Clad, appellee asserts it paid United Aluminum $77,850.00 and United Aluminum paid X-Clad $16,394.00.

The difference of $61,456.00 constitutes damages, for a total of $174,875.63. Moreover, appellee points out that appellant conceded United Aluminum could not account for $124,775.10. According to appellee, when that amount is added to non-project payments made in the amount of $18,351.20, as shown by the evidence, the total comes to approximately $143,000.00, supporting the amount of the circuit court’s judgment Finally, appellee argues that damages should be determined by the amount appellee had to pay in excess of the amounts payable to Alply and X-Clad under their purchase orders. Thus, appellee subtracts $349,886.00 payable to Alply pursuant to its purchase order with United Aluminum from the amount of total payments made by appellee, $436,650.00, resulting in damages in the amount of $86,764.00.

Similarly, appellee subtracts $131,098.00 payable to X-Clad pursuant to its purchase order with United Aluminum from the amount of total payments made by appellee, $194,383.00, resulting in damages in the amount of $63,285.00. The resultant total of $150,049.00 supports the trial court’s award. At trial, appellee also argued that the amounts paid to Alply and X-Clad post contract termination, totaling $146,532.80, would be an appropriate amount of damages. In this case, appellee chose a contract theory of damages.

We find the court acted within its discretion to determine how much of the total contract damages were caused by the breach of trust. See Tacon Mech. Contractors, Inc. v. Grant Sheet Metal, Inc., 889 S.W.2d 666, 674 (Tex.Ct.App.1994) (affirming jury award against contractor for actual damages arising from ³⁵⁸ contractor’s breach of contract, wrongful interference with subcontractor’s performance, and misapplication of trust funds). As to the court’s finding of damages, the evidence clearly permits a finding that United Aluminum received monies from appellee for payment to Alply and X-Clad that were not paid.

The amount ranges from approximately $124,000.00 to approximately $174,000.00. The question then becomes the extent to which appellee was “damaged” as a result of the failure to pay. The main difference between the parties is that appellant argues it is entitled to have the values in its contract with appellee form the basis for computation, because the difference between those values and the amounts charged by the suppliers was profit to United Aluminum, and does not constitute damages to appellee. Appellee argues that the amounts charged by the suppliers to appellee forms the basis for computation.

Appellee sustained damages, allegedly approximating $495,000.00, but when reduced to judgment against United Aluminum, were in the amount of $250,000.00. Appellee’s suit against United Aluminum and appellant, while based on two different causes of action, see discussion infra Part 4, claimed the same damages. Thus, the question is whether appellant is liable for all of the damages or some portion thereof, and if the latter, what portion. That answer turns on causation, which ordinarily is a question of fact.

The question is not necessarily determined by the values in the contracts. They were lump sum contracts with flexibility in determining specific values, the values determining where the “profit” would lie. Certainly, the values are very important in determining a trust violation and they are relevant to damages, as are all the circumstances relating to appellant’s breach of trust as to Alply and X-Clad, and the effect of that breach. There was sufficient evidence to permit a finding that appellant’s breach of trust contributed to appellee’s total damages.

The court did not expressly indicate how it arrived ³⁵⁹ at the amount of damages, but the amount is within the range that is supportable by the evidence. The damages, however, are duplicative of the damages against United Aluminum. The