Opinion
C. A. WC-2013-0629
02-27-2024
CAROLINE FLYNN, VINCENT FLYNN, FLYNN AUTOMOTIVE LLC, AND MALLOY PROPERTIES, LLC, Plaintiffs, v. NAPPA CONSTRUCTION MANAGEMENT, LLC, MOHAMED H. HUSSEIN, P.E., ALBERT E. DEROBBIO, INDEPENDENCE BANK, WILLIAM BRZOZA, AND STEVEN M. NAPPA, Defendants.
For Plaintiffs: Patrick J. Dougherty, Esq. For Defendants: Dean J. Wagner, Esq.; Kevin F. Bowen, Esq.; John A. Dorsey, Jr., Esq.; Hannah Foye, Esq.; Thomas W. Heald, Esq.
For Plaintiffs: Patrick J. Dougherty, Esq.
For Defendants: Dean J. Wagner, Esq.; Kevin F. Bowen, Esq.; John A. Dorsey, Jr., Esq.; Hannah Foye, Esq.; Thomas W. Heald, Esq.
DECISION
TAFT-CARTER, J.
Before this Court for Decision is Defendant Independence Bank's Motion for Summary Judgment with respect to Counts III, IV, and V of Plaintiffs' Sixth Amended Complaint and Plaintiffs' Objection. Jurisdiction is pursuant to G.L. 1956 § 8-2-14 and Rule 56 of the Superior Court Rules of Civil Procedure.
I
Facts and Travel
This action arises from a dispute involving construction of an automotive repair facility between Plaintiffs Caroline Flynn, Vincent Flynn, Flynn Automotive, LLC, Malloy Properties, LLC (collectively Plaintiffs) and Defendants Nappa Construction Management, LLC, Mohamed H. Hussein, Albert E. DeRobbio, Independence Bank, William Brzoza, and Steven M. Nappa (collectively Defendants). In September 2012, Caroline and Vincent Flynn (Flynns) began the process of securing a loan to finance the automotive repair facility construction project while also seeking quotes from contractors. (Def.'s Mem. in Supp. of Mot. for Summ. J. (Def.'s Mem.) Ex. A, Caroline Flynn Dep. (Def.'s Mem. Ex. A) at 21:2-14, 24:3-9, 26:1-3, Aug. 23, 2022.)
The Flynn's executed a contract for a commercial construction project with Nappa Construction Management, LLC (Nappa CM) using an American Institute of Architects A101-2007 Standard Form of Agreement Between Owner and Contractor. (Def.'s Mem. Ex. C.) Defendant Steven Nappa was the owner of Nappa CM. Defendant Brozoza worked as a manager for Nappa CM, and Defendant Hussein served as Nappa CM's engineer of record for the project. (Def.'s Mem. Exs. C, at 7 and A, at 34:21-35:4, 258:21-25.)
On December 14, 2012, Defendant Independence Bank (Bank) and Plaintiffs Flynn Automotive, LLC (Flynn Auto), and Malloy Properties, LLC (Malloy) entered into a Small Business Administration (SBA) Loan with the Bank. (Def.'s Mem. Ex. E.) Flynn Auto and Malloy borrowed $640,000.00 to pay off a seller's note to construct the automotive repair facility at Dean Knauss Drive in Narragansett, RI. (Def.'s Mem. Ex. F, at 27; Def.'s Mem. Ex. A, at 59:9-24.) The Flynns were the Guarantors of the SBA loan (Def.'s Mem. Ex. E., at 208.) Vincent Flynn executed the SBA loan as co-borrower in his capacity as the sole member of Flynn Auto and Caroline Flynn executed the SBA loan as co-borrower in her capacity as the sole member of Malloy. (Def.'s Mem. Ex. E, at 207-08.) Defendant DeRobbio was the Bank's inspector at that time. (Def.'s Mem. Ex. A, at 41:9-12.)
Flynn Automotive, LLC is now Flynn Automotive, Inc. (Def.'s Mem. Ex. MM, Caroline Flynn Dep. at 57:1-18, March 15, 2023.)
On December 14, 2012, the Flynns executed a U.S. Department of Housing and Urban Development (HUD) Settlement Statement on behalf of Flynn Auto and Malloy with the Bank as lender. (Def.'s Mem. Ex. H.) Similarly, on the same day, the Flynns executed an HUD SBA settlement sheet (use of proceeds certification) on behalf of Flynn Auto and Malloy with the Bank as lender for the disbursement of loan proceeds in the amount of $244,000 to pay off a seller's note and for various fees, working capital, and loan reserves. (Def.'s Mem. Ex. I.) Service Insurance, the Bank, Nappa CM, and Flynn Auto entered into a Set Aside Agreement on December 18, 2012, for the purpose of ensuring that the loan proceeds were dedicated for the completion of improvements delineated in Nappa CM's proposal. (Def.'s Mem. Ex. L.) Section two of the Set Aside Agreement provides:
"Lender shall disburse loan proceeds to such person or persons in such amounts as shall be designated in a written requisition by Nappa Construction as the contractor, which shall be accompanied by a certification from an independent engineering firm that the improvements for which payment is sought has been completed in accordance with the plans and specifications approved by the Lender[.]" Id. (emphasis added).
There is argument by the parties that section two is vague and ambiguous. (Def.'s Mem. 38, 53.) Bank argues that section two is clear in that it does not require the Bank to select an independent engineer but only requires that the Bank disburse loan proceeds pursuant to a written requisition accompanied by a certification from an independent engineering firm. Id. at 66. Plaintiffs maintain that the Set Aside Agreement added the requirement that the Bank obtain the certification by an independent engineering firm before disbursing any funds. (Pls.' Mem. 29.) As expressed at the hearing for this motion, the Court does not find any ambiguity in section two of the Set Aside Agreement. (See Hr'g Tr. 31:21-32:10, Dec. 13, 2023.) It was Nappa CM's obligation to attach the certification from an independent engineer with the requisition requests and the Bank's obligation to disburse loan proceeds pursuant to the requisition with an attached independent engineer certification.
A requirement of the SB A loan was that a surety bond be obtained to ensure that work would be completed in accordance with the plans and specifications. (Def.'s Mem. Ex. E, at 203.) On January 29, 2013, The Service Insurance Company, Inc. (Service Insurance) issued a performance and payment bond with respect to the project between Nappa CM and Flynn Auto. (Def.'s Mem. Ex. W.)
With the project underway, there were three requisitions (application and certificate for payment) that were approved by the Flynns and disbursed by the Bank. Requisition one for $26,000.00 was approved by the Flynns, with a certification signed by the structural engineer of record, Mohamed H. Hussein, and disbursed in accordance with the loan agreement on December 18, 2012. (Def.'s Mem. Exs. J, K, and A, at 81:13-25.) In addition to Requisition number one, the Flynns executed a settlement sheet acknowledging disbursement of $26,000. (Def.'s Mem. Ex. K.)
Requisition two for $85,680.00 was approved and disbursed on January 25, 2013. (Def.'s Mem. Exs. N and A, at 119:12-21, 142:5-19; Pls.' Mem. in Obj. to Def.'s Mot. for Summ. J. (Pls.' Mem.) Ex. 12.) In addition to Requisition two, the Flynns executed an SBA settlement sheet on behalf of Flynn Auto and Malloy with lender Bank. (Def.'s Mem. Ex. V.)
Finally, requisition three for $87,466.86 was approved and disbursed on March 19, 2013. (Def.'s Mem. Exs. X and A, at 168:15-20; Pls.' Mem. Ex. 12.) Requisition three was accompanied by five proposed change orders that would have raised the contract sum from $360,000 to $408,193.92. (Def.'s Mem. Ex. X.) The Flynns thought the change orders were ridiculous and did not agree with them. (Def.'s Mem. Ex. A, at 161:15-162:7.) Negotiations occurred at the construction site involving several individuals with respect to the change orders. Id. at 161:19-21. There were discussions with Service Insurance with respect to the proposed change orders and requisition three. Id. at 163:17-20. Robert Catanzaro representing the Bank advised the Flynns that they did not have to approve the change orders and could approve requisition three without the change orders. Id. at 164:19-165:7. The resolution of the negotiations ended with the Flynns declining the change orders and approving Requisition three. Id. at 165:9-12, 167:1-16, 168:18-20.
Requisitions four ($39,655.75) and five ($57,034.26) were never approved by the Flynns and were not disbursed (Def.'s Mem. Exs. Y, AA, MM (Caroline Flynn Dep., Mar. 15, 2023), at 39:2-10, and A, at 180:12-14.)
Disputes concerning the flooring and soil work performed by Nappa CM began to arise. In June 2013, the Flynns' former attorney advised Nappa CM to stop work on the project. (Def.'s Mem. Ex. MM, at 96:1-18.) Plaintiffs filed the original complaint on December 3, 2013. Subsequently, on January 10, 2014, Nappa CM filed a Demand for Arbitration. (Def.'s Mem. Ex. PP.) On March 13, 2015, the arbitrator issued an award that was eventually confirmed by the Superior Court on May 22, 2015. See Docket, Order on Mot. to Vacate, filed on May 13, 2015. The decision was appealed to the Supreme Court and on January 23, 2017, the order confirming the arbitration award was remanded to the Superior Court. Nappa Construction Management, LLC v. Flynn, 152 A.3d 1128, 1135 (R.I. 2017). In an Order dated June 21, 2017, the Honorable Associate Justice Kristin Rodgers Granted the Flynns' Motion to Vacate the Arbitration Award and remanded the matter back to the original arbitrator. See Docket, Order filed on May 30, 2017. Finally, on March 10, 2020, the arbitrator terminated the arbitration based on mutual agreement of Nappa CM's legal status. (Def. Nappa CM's Mem. Ex. CC attached to Aff. of Steven Nappa.)
On February 1, 2023, Plaintiffs filed their Sixth Amended Complaint, the operative Complaint. (Sixth Am. Compl.) In it they allege three Counts against Independence Bank, including Negligence in Count III, Breach of Fiduciary Duty in Count IV, and Breach of Contract in Count V. Id. ¶¶ 31, 36, 39. Plaintiff Malloy asserts it was an intended beneficiary of the Set Aside Agreement and thus asserts Breach of Contract under Count V. Id. ¶ 40.
Although not parties to this motion, the Complaint alleges Breach of Contract (Count I), Negligence (Count II), Fraudulent Misrepresentation (Count VI), and Conspiracy to Commit Fraudulent Misrepresentation (Count VII) against Nappa CM. Id. ¶¶ 19, 27, 49, 52. Additionally, the Complaint advanced claims against Steven Nappa for Fraudulent Misrepresentation (Count VI) and Conspiracy to Commit Fraudulent Misrepresentation (Count VII). Id. ¶¶ 42, 52, 57. Finally, the Complaint advanced claims against Defendants Mohamed H. Hussein and Albert E. DeRobbio for Negligence (Count II), Defendants William Brzoza and DeRobbio for Fraudulent Misrepresentation (Count VI) and Conspiracy to Commit Fraudulent Misrepresentation (Count VII), and against Defendant Hussein for Negligent Misrepresentation (Count VIII). Id. ¶¶ 24, 26, 42, 49, 52, 57.
On May 23, 2023, the Bank filed the instant Motion for Summary Judgment requesting summary judgment on Counts III, IV, and V. (Def.'s Mot. for Summ. J.) The Bank also filed a memorandum of law in support with exhibits attached. (Def.'s Mem.)
Subsequently, on September 29, 2023, Plaintiffs filed an objection with a memorandum of law in support and exhibits attached. (Pls.' Mem.) On October 10, 2023, the Bank filed a reply to Plaintiffs' objection. (Def.'s Reply.) On December 11, 2023, Plaintiffs filed a surreply to Bank's reply. (Pls.' Surreply.) The parties were heard for oral argument in this Court on December 13, 2023. Plaintiffs stipulated that Summary Judgment may enter for the Bank on Counts III and IV, leaving only Count V for Breach of Contract before the Court. (Pls.' Mem. 1.)
II
Standard of Review
A
Motion for Summary Judgment
"'Summary judgment is a drastic remedy, and a motion for summary judgment should be dealt with cautiously.'" Cruz v. DaimlerChrysler Motors Corp., 66 A.3d 446, 451 (R.I. 2013) (quoting DeMaio v. Ciccone, 59 A.3d 125, 129 (R.I. 2013)).
"'Summary judgment is appropriate when no genuine issue of material fact is evident from the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any, and the motion justice finds that the moving party is entitled to prevail as a matter of law.'" Swain v. Estate of Tyre ex rel. Reilly, 57 A.3d 283, 288 (R.I. 2012) (quoting Beacon Mutual Insurance Co. v. Spino Brothers, Inc., 11 A.3d 645, 648 (R.I. 2011)) (internal quotation omitted); see Super. R. Civ. P. 56. "In deciding a motion for summary judgment, [a] [c]ourt views the evidence in the light most favorable to the nonmoving party." Mruk v. Mortgage Electronic Registration Systems, Inc., 82 A.3d 527, 532 (R.I. 2013) (citing Beauregard v. Gouin, 66 A.3d 489, 493 (R.I. 2013)).
Moreover, the moving party "bears the initial burden of establishing the absence of a genuine issue of fact." McGovern v. Bank of America, N.A., 91 A.3d 853, 858 (R.I. 2014) (internal quotation marks omitted). The burden then shifts to the "nonmoving party [who] bears the burden of proving by competent evidence the existence of a disputed issue of material fact and cannot rest upon mere allegations or denials in the pleadings, mere conclusions or mere legal opinions." Mruk, 82 A.3d at 532. (Internal quotation marks omitted.) "'[C]ompetent evidence[]' . . . is generally presented on summary judgment in the form of '[]depositions, answers to interrogatories, . . . admissions on file, . . . [and] affidavits.'" Flynn v. Nickerson Community Center, 177 A.3d 468, 476 (R.I. 2018) (quoting Leone v. Mortgage Electronic Registration Systems, 101 A.3d 869, 874 (R.I. 2014)).
III
Analysis
A
Malloy as an Intended Beneficiary
Malloy asserts breach of contract against the Bank as an intended beneficiary of the Set Aside Agreement. (Sixth Am. Compl. ¶ 40.) The Bank argues Malloy was not a party to the Set Aside Agreement nor was it a third-party intended beneficiary. (Def.'s Mem. 9, 39.) Specifically, the Bank argues that the Set Aside Agreement does not contain a third-party beneficiary clause, does not suggest any intent to benefit a third party, and does not mention a third party who would benefit from the agreement. Id. at 60. Plaintiffs do not advance an argument in their Objection or Surreply on the issue of Malloy as an intended third-party beneficiary.
"A party who is not in privity of contract may not seek enforcement or interpretation of that contract." Christy's Auto Rentals, Inc. v. Massachusetts Homeland Insurance Company, 204 A.3d 1071, 1077 (R.I. 2019). "Privity of contract is defined as '[t]he relationship between the parties to a contract, allowing them to sue each other but preventing a third party from doing so.'" 1112 Charles, L.P. v. Fornel Entertainment, Inc., 159 A.3d 619, 625 n.8 (R.I. 2017) (quoting Black's Law Dictionary 1394 (10th ed. 2014)).
Both Rhode Island and New Jersey courts follow the Restatement (Second) of Contracts § 302 in determining whether a beneficiary is intended or merely incidental. John Rocchio Corporation v. Pare Engineering Corporation, 201 A.3d 316, 323 (R.I. 2019). Section 302 states the following:
"(1) Unless otherwise agreed between promisor and promisee, a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
"(a) the performance of the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or
"(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
"(2) an incidental beneficiary is a beneficiary who is not an intended beneficiary." Restatement (Second) of Contracts § 302 (1981); See Broadway Maintenance Corporation v. Rutgers, State University, 447 A.2d 906, 909 (N.J. 1982) (following the Restatement Second of Contracts § 302).
"Incidental beneficiaries are not entitled to bring a claim for breach of contract under the third-party beneficiary doctrine." Hexagon Holdings, Inc. v. Carlisle Syntec, Inc., 199 A.3d 1034, 1040 (R.I. 2019). Here, there is nothing contained in the Set Aside Agreement that would suggest an intent to benefit Malloy. Furthermore, Malloy is not mentioned as a beneficiary of the agreement. (Def.'s Mem. Ex. L.) Notably, only Plaintiff Flynn Auto signed the Set Aside Agreement. Id. Therefore, Malloy was not an intended beneficiary of the Set Aside Agreement.
B
Waiver of the Independent Engineer Certification Requirement for Requisitions in the Set Aside Agreement
The Set Aside Agreement provides that New Jersey law should apply. There is no genuine dispute between the parties with respect to a conflict of laws. The Set Aside Agreement shall be interpreted in accordance with the laws of New Jersey. (Def.'s Mem. Ex. L.) Both parties have cited New Jersey and Rhode Island law. (Def.'s Reply 18-19; Pls.' Mem. 24.) Plaintiffs concede that Rhode Island law on waiver "largely mirrors" New Jersey law. (Pls.' Mem. 24.) Therefore, the Court will not conduct a conflict of laws analysis and will reference Rhode Island and New Jersey law where it is appropriate to do so.
The Bank argues Plaintiffs voluntarily waived any requirement in the Set Aside Agreement that the requisitions be accompanied by a certification from an independent engineering firm. (Def.'s Mem. 66.) The Bank further argues that Plaintiffs approved the requisitions accompanied by certifications from the engineer of record with the help from their own engineer and sometimes their prior attorney. Id. at 67. Finally, the Bank argues that not only were the requisitions signed and approved without an independent engineer certification, Plaintiffs were aware that Nappa CM advised the bank that the structural engineer of record's certification was sufficient for the requisitions. (Def.'s Mem. 68-69.)
The Court notes that the only Plaintiff that was a party to the Set Aside Agreement was Flynn Auto. Vincent Flynn signed the Set Aside Agreement on behalf of Flynn Auto. (See Def.'s Mem. Ex. L.) For ease of reference, "Plaintiffs" in this section refers to Flynn Auto and the Flynns in their capacities as the parties responsible for signing the requisition requests and making decisions on behalf of the entities known as Flynn Auto and Malloy. Each Plaintiff is referred to individually where appropriate to illustrate their behavior on behalf of Flynn Auto with respect to the issue of waiver of the independent engineer certification in the Set Aside Agreement.
Plaintiffs argue had the Bank not disbursed funds for requisitions two and three, the deficiencies of the work and materials would have been discovered sooner by an independent engineering firm. (Pls.' Mem. 17.) Plaintiffs further argue they were not sophisticated persons in the realm of construction contracts and did not waive the requirement of an independent engineer certification through the email chain that took place in January 2013. Id. at 18. Specifically, they argue that they understood the emails between Nappa CM, the Bank, and themselves to be communications related to the construction loan and not the Set Aside Agreement. Id. at 18. Thus, they argue there is a material factual dispute about what the understanding of the communications by the parties was in January 2013. Id. at 19. Finally, Plaintiffs argue they were already obligated to sign the requisitions regardless of the Set Aside Agreement because of the construction contract, construction loan agreement, and SBA loan. Id. at 22.
The Bank counters that the Plaintiffs voluntarily waived the independent engineer certification when they executed requisitions two and three with the agreed to statement of "in lieu of engineer signature." (Def.'s Reply 9.) Finally, the Bank responds that Plaintiffs have asserted conclusory allegations that do not establish the existence of any genuine issues of material fact. Id. . at 10.
"Waiver is the voluntary intentional relinquishment of a known right . . . [resulting] from action or nonaction." Haxton's of Riverside, Inc. v. Windmill Realty, Inc., 488 A.2d 723, 725 (R.I. 1985). Our Courts "will not lightly infer, to the extent that the record supports such an inference, the waiver of contractual provisions; evidence supporting an inference of waiver must be manifest and apparent." Haydon v. Stamas, 900 A.2d 1104, 1113 (R.I. 2006). Furthermore, "[t]he party arguing that there has been a waiver bears the burden of showing clearly its existence, and, generally, the ultimate determination is one of fact." Id. at 1113.
Implied waiver has been described as:
"Waiver that results from a party's actions may be expressed in the actions themselves or implied from them, and 'may arise where a person against whom the waiver is asserted has pursued such a course of conduct as to sufficiently evidence an intention to waive a right where his [or her] conduct is inconsistent with any other intention than to waive it.'" Haydon, 900 A.2d at 1112-1113 (quoting Sturbridge Home Builders, Inc. v. Downing Seaport, Inc., 890 A.2d 58, 65 (R.I. 2005)).
New Jersey case law mirrors that of Rhode Island in holding that "a party need not expressly state its intent to waive a right; instead, waiver can occur implicitly if 'the circumstances clearly show that the party knew of the right and then abandoned it, either by design or indifference."' Cole v. Jersey City Medical Center, 72 A.3d 224, 231 (N.J. 2013). "Waiver may be established, as a matter of law, only when it is proved by the express declaration of the party charged with the waiver or by undisputed words or conduct so inconsistent with a purpose to stand on the contractual right allegedly waived as to leave no possibility of any reasonable inference to the contrary." 13 Williston on Contracts § 39:21 (4th ed.) (citing Haydon, 900 A.2d at 1113; also citing Hospital Computer Systems, Inc. v. Staten Island Hospital, 788 F.Supp. 1351, 1357 (D.N.J. 1992)).
Section two of the Set Aside Agreement between Flynn Auto and the Bank provides that:
"Lender shall disburse loan proceeds to such person or persons in such amounts as shall be designated in a written requisition by Nappa Construction as the contractor, which shall be accompanied by a certification from an independent engineering firm that the improvements for which payment is sought has been completed in accordance with the plans and specifications approved by the Lender[.]" Id. (emphasis added); (Def.'s Mem. Ex. L; Pls.' Mem. Ex. 5.)
The clear language of section two mandates that the lender shall disburse funds as set forth in the requisitions prepared by Nappa CM. The requisitions, as prepared by Nappa CM, shall be "accompanied by a certification from an independent engineering firm." The purpose of the certification is to ensure compliance with the plans and specifications.
It is undisputed that three requisitions were approved by the Flynns and disbursed by the Bank. Requisition one in the amount of $26,000 was approved by the Flynns. The attached certification was signed by the structural engineer of record, Mohamed H. Hussein, and disbursed in accordance with the loan agreement on December 18, 2012. (Def.'s Mem. Exs. J, K, M and A, at 81:13-25.)
1
Requisition Two
Requisition two in the amount of $85,680 was approved and disbursed on January 25, 2013. (Def.'s Mem. Exs. N, V, and A, at 119:12-21, 142:5-19; Pls.' Mem. Ex. 12.) The Flynns also executed a corresponding settlement sheet. (Def.'s Mem. Ex. V.)
On January 13, 2013, Flynn Auto and Nappa CM's Engineer of Record, Mohamed H. Hussein, signed a project certification form. (Def.'s Mem. Ex. M.) On January 18, 2013, the Flynns' engineer CJ Doyle conducted a site visit and emailed the Bank's Vice President, Karen Bassette, noting that the "construction was proceeding forward as anticipated." (Def.'s Mem. Exs. P and A, at 20:9-13.) That same day, Karen Bassette emailed Steve Nappa, Caroline Flynn, and Vincent Flynn. The email stated that:
"[t]he bank cannot disburse the funds for Requisition #2 until receipt of the following:
"Performance and Payment Bond
"Signature of Engineer of record on the AIA G702
"Letter from Al DeRobbio, the construction inspector for the bank, approving the requisition
"Letter from CJ Doyle stating the project is compliant with CRMC Assent." (Def.'s Mem. Ex. O; Pls.' Mem. Ex. 13.)
Nappa CM's project manager, Bill Brzoza, responded by email to Karen Bassette, Vincent Flynn, Caroline Flynn, and Steve Nappa:
"1. The performance and payment bond will be delivered today.
"2. Per the contract documents, the design engineers do not sign off on request for payment.
"3. Al DeRobbio was at the site yesterday to review the site conditions and request for payment.
"4. CJ Doyle can certainly make a site visit, but per the contract documents, no signature by her firm is required for funding." Id.
On January 25, 2013, Bassette responds by email to Brzoza, Steve Nappa, and the Flynns that
"[i]n lieu of the engineer signing the G702, I have attached acceptable language to be added to each G702. Al does not need to sign the G702's. Caroline and Vincent should still sign these. Please revise Application No. 1 and 2 to include this language and send them back to my attention." (Def.s' Mem. Ex. U; Pls.' Mem. Ex. 13.)
G-702 forms are the requisition requests. (See Def.'s Mem. Exs. N and X.) Thereafter, requisition request two was approved and signed by the Flynns with the language concerning Hussein's certification form. (Def.'s Mem. Ex. V.) That language is: "Per the Project Certification dated January 13, 2013 signed by the structural engineer of record, Mohamed H. Hussein." Id.
Plaintiffs are disputing requisitions two and three, while conceding that requisition one was not for work done or materials supplied but rather, requisition one was a deposit. (Pls.' Mem. 8.) Plaintiff Caroline Flynn also stated in deposition that there is no dispute with requisition one. (Def.'s Mem. Ex. A, at 79:24-80:1.)
Caroline Flynn recalled being included in the January 2013 emails. (Def.'s Mem. Ex. A, at 122:1-3, 124:10-11, 138:7-8.) She further recalled the Bank asking for a signature from the engineer of record on the requisition. Id. at 122:15-18. Caroline Flynn did not object to Bill Brzoza's email on January 18, 2013 when he informed the Bank that the design engineers do not sign off on requests for payment. Id. at 125:9-11. Nor did she insist that an engineer sign the requisitions. Id. at 125:18-20. When asked if she recalled the parties agreeing to modify the requisitions and eliminate the requirement that an engineer sign off before disbursement, Caroline Flynn responded "They changed." Id. at 137:20. In response to the January 25, 2013 email from Bassette to Brzoza, Steve Nappa, and the Flynns recommending a change of the engineer certification procedure for the requisition requests, Caroline Flynn averred that she and Vincent did not object because they had no idea how it works. Id. at 139:19-21. Further, she "didn't insist on anything" and just "watched the back-and-forth." Id. at 140:3-4. Finally, rather than insisting that an independent engineer inspect the work and certify that it had been completed in accordance with the plans and specifications, Caroline Flynn "just let them do what they did." Id. at 140:9-13.
Vincent Flynn maintains that when Flynn Auto was copied on the January 18 and 25, 2013 email chains regarding the G-702 requisition forms, he did not understand those emails to be referring to the Set Aside Agreement. (Pls.' Mem. Ex. 16, Aff. of Vincent Flynn (Flynn Aff.) ¶ 9.) Vincent Flynn further maintains that there was no reference in the emails to any engineer other than the design engineer of record, Mohamed Hussein, and CJ Doyle, who were not independent. Id. ¶ 13. Finally, Vincent Flynn maintains that he never intended to relieve the Bank of any contractual obligations when he signed the requisition requests, that he was not asked to respond to emails, accept, reject, or comment on proposed disbursement procedure changes, and that he was never told in writing or verbally that in approving disbursements he was waiving the Bank's obligation for a certification from an independent engineer. Id. ¶¶ 14-15.
These statements are clearly contrary to the undisputed facts here. Mr. Flynn signed the Set Aside Agreement on behalf of Flynn Auto and as such he is presumed to have read the document. See Serenska v. Wells Fargo Bank, N.A., -- A.3d --, 2024 WL 481997, at *5 (R.I. 2024) (borrower presumed to have read mortgage they signed). The clear language of the Set Aside Agreement indicates that the disbursement of loan proceeds was to ensure that the improvements for which payment was sought was in accordance with the plans and specifications of the project. He was concerned that the project was completed in accordance with the plans and specifications. (See Def.'s Mem. Ex. NN, Vincent Flynn Dep. at 22:23-25:24, May 4, 2023.) Furthermore, the clear language of the emails references the engineers.
Waiver may arise where a party's course of conduct sufficiently evidences an intention to waive a right where its conduct is inconsistent with any other intention than to waive that right. Haydon, 900 A.2d at 1112-1113. Here, the uncontradicted facts establish that requisition two was signed and approved by the Flynns without a certificate from an independent engineering firm. (Def.'s Mem. Ex. A, at 184:16-18.) Moreover, the Flynns were clearly apprised and notified in the email discussions that the engineer did not sign the requisition forms. In fact, the email stated "[i]n lieu of the engineer signing." Additionally, prior to the January 18, 2013 email, the Flynns met with and discussed several project concerns related to soil up to that point with engineers Doyle and Hussein. (See Def.'s Mem. Ex. T.) The Flynns' engineer Doyle conducted a site visit on January 19, 2013 noting concerns to the Flynns regarding fill and stormwater drainage. (Def.'s Mem. Ex. Q.) This discussion and work took place prior to requisition two. Furthermore, with the knowledge of the project issues the Flynns did not raise objection to the reversed engineer certification process.
The Court notes that the Performance and Payment Bond has an effective date of January 29, 2013. (Def.'s Mem. Ex. W.) Thus, requisition two was disbursed on January 25, 2013 prior to the effective date of the bond. While the Set Aside Agreement provided that the surety (Service Insurance) would issue a performance bond at borrower's request, the Bank did not sign the bond and the bond was for the benefit of the Plaintiffs. (See Def.'s Mem. Exs. L and W.) The Court need not engage this argument in depth as Plaintiffs waived the requirement for an independent engineer certification.
2
Requisition Three
Requisition three in the amount of $87,466.86 was approved and disbursed on March 19, 2013. (Def.'s Mem. Exs. X and A, at 168:15-20; Pls.' Mem. Ex. 12.) The approval was several months after the second requisition and the discussions surrounding engineer approval for requisition requests. Requisition four went unsigned by Plaintiffs in June 2013. (Def.'s Mem. Ex. Y.)
Finally, after the November 2013 Geisser Engineering Report concluding that the slab and structural fill needed to be removed (Pls.' Mem. Ex. 7), in December 2013, the Flynns' attorney requested the Bank replace their inspector, Albert DeRobbio. (Def.'s Mem. Ex. A, at 202:4-9). Charles Vernon (Vernon) was chosen by the Flynns' attorney to review construction. Id. at 202:17-203:1. Vernon is not an engineer and the Flynns did not insist on an engineer to oversee the project. Id. at 203:2-9. In fact, they told Vernon that CJ Doyle would continue providing engineering management and oversight of the site work outside of the building. Id. at 205:20-25. Therefore, even at the late date of December 2013 involving the disputes about the construction project, the Flynns did not insist on an independent engineer.
Here, it is manifest and apparent that the undisputed actions of the Plaintiffs constitute waiver of the requirement of independent engineer certification in the Set Aside Agreement. The course of their conduct in discussing the certification process and ultimately approving two requisitions requiring only engineer Hussein's certification clearly establishes that fact. The Flynns argue that because they had an obligation to sign the requisition requests pursuant to the Contract and Loan documents, they had no choice but to sign the requisitions. (See Flynn Aff. ¶ 9.) This argument is unpersuasive. There is no dispute the Flynns had the obligation so the payment would be secured; however, the waiver issue pertains to the process to ensure the improvements for which the payment is sought was complied with in accordance with the plans and specifications.
Therefore, by signing requisitions for payment and the settlement sheets, Plaintiffs waived the obligation of the Bank not to disburse funds without an independent engineer certification.
C
Liability of Bank's Inspector DeRobbio
The Bank argues that Count V (Breach of Contract) should be dismissed because the loan documents provide that the Bank is not liable for the services performed by its construction inspector or the quality of the construction. (Def.'s Mem. 61.)
Plaintiffs argue that the Bank is correct that paragraph 13 of the construction loan agreement negates liability for the Bank's inspector's actions, but it does not negate the duty to require certification from an independent engineer. (Pls.' Mem. 28); (See Def.'s Mem. Ex. F at 13.)
The evidence on the record demonstrates that Defendant DeRobbio was the Bank's inspector at the relevant times surrounding the controversy and the construction. (Def.'s Mem. Ex. A, at 41:9-12.) Paragraph 13 of the Construction Loan Agreement provides in relevant part:
"All inspections made pursuant hereto are made solely for the benefit of the Lender and the Lender shall assume no responsibility and shall have no liability to the Co-Borrowers for the completion of the Improvements according to the Plans or for the quality of the work or materials used or for any other reason by virtue of such inspections." (Def.'s Mem. Ex. F., at 13.)
Therefore, because Plaintiffs waived the requirement for an independent engineer certification and because DeRobbio was the Bank's inspector and the parties agree that the Bank's inspector is not liable for his actions, the Court declines to grant summary judgment on this basis.
D
Materiality of the Breach and Proximate Cause
The Bank argues that even if the Court finds a breach of the Set Aside Agreement, such breach was not a material or substantial cause of damages. (Def.'s Mem. 74, 83.) The Bank further argues that Count V should be dismissed because any breach of the Set Aside Agreement was not the proximate cause of Plaintiffs' damages. Id. at 84-85.
Plaintiffs argue that the Bank's breach of the Set Aside Agreement was a substantial, foreseeable, material, and primary cause of damages as the funds would not have been disbursed if the Bank would have required an independent engineer to certify the work had been completed according to plans and specifications. (Pls.' Mem. 14, 17, 29.)
"Generally, whether a party materially breached his or her contractual duties is a question of fact. . . . Significantly, however . . . [i]f the issue of material breach admits of only one reasonable answer, then the court should intervene and resolve the matter as a question of law." Machado v. Narragansett Bay Insurance Company, 252 A.3d 1206, 1210 (R.I. 2021).
Critically, even if the Bank breached the Set Aside Agreement, such breach was not a material breach of the Set Aside Agreement. Plaintiffs had their own engineer CJ Doyle advising them throughout the construction project. To assume that an independent engineer would have taken any action Doyle or Muhammed Hussein did not take is entirely speculative. Loan proceeds were not disbursed without the approval of multiple parties including the engineers of record, the contractor, and the Plaintiff borrowers.
Furthermore, even if the Bank's breach of the Set Aside Agreement was material, that breach is not the cause in fact of the loss. Wells v. Uvex Winter Optical, Inc., 635 A.2d 1188, 1191 (R.I. 1994). The failure to disburse funds without an independent engineer's certification must have been a substantial factor in bringing about the harm. Id. Construction was not performed by the Bank. The Bank did not choose the fill to be used or the materials to be supplied.
Therefore, even if there was a material breach of the Set Aside Agreement, that breach was not the proximate cause of Plaintiffs' damages.
IV
Conclusion
For the reasons stated above, Defendant Independence Bank's Motion for Summary Judgment is GRANTED.
Counsel shall prepare the appropriate order.