H & J Ditching & Excavating, Inc. v. Cornerstone Community Bank ( 2016 )


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  •                   IN THE COURT OF APPEALS OF TENNESSEE
    AT KNOXVILLE
    October 27, 2015 Session
    H & J DITCHING & EXCAVATING, INC. V. CORNERSTONE
    COMMUNITY BANK
    Appeal from the Circuit Court for Knox County
    No. 2-560-13   Jon Kerry Blackwood, Judge1
    No. E2015-01060-COA-R3-CV-FILED-FEBRUARY 19, 2016
    Plaintiff H & J Ditching & Excavating, Inc. (Contractor) was hired by JRSF, LLC
    (Developer) to perform excavating and grading work on a subdivision construction
    project (the project) in West Knox County. Defendant Cornerstone Community Bank
    (Lender) provided financing for the project with a $2,512,500 construction loan.
    Complications arose, including the bankruptcy of one of Developer‟s primary members.
    Developer defaulted on the construction loan. Lender foreclosed and took possession by
    bidding on the property at the foreclosure sale. Contractor alleges that it completed the
    grading and infrastructure work but that it only received 90% of the contract price.
    Contractor brought this tort action against Lender, alleging intentional and negligent
    misrepresentation to-wit, by assuring Contractor that the construction loan to Developer
    was “fully funded” and that Contractor would be paid for its work. The trial court
    granted Lender summary judgment, finding that (1) Lender made no false or misleading
    statements and (2) the proximate cause of Contractor‟s alleged injury in not receiving its
    final 10% payment was Contractor‟s failure to request and obtain an engineer‟s certificate
    of final completion, a condition precedent to payment under its contract with Developer.
    We affirm.
    Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
    Affirmed; Case Remanded
    CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which D. MICHAEL
    SWINEY, C.J., and JOHN W. MCCLARTY, J., joined.
    Arthur F. Knight, III, and Jonathan Swann Taylor, Knoxville, Tennessee, for appellant,
    H & J Ditching & Excavating, Inc.
    1
    Sitting by designation.
    1
    P. Edward Pratt, Knoxville, Tennessee, for appellee, Cornerstone Community Bank.
    OPINION
    I.
    On December 18, 2007, Contractor excuted agreements with Developer to perform
    excavation, grading, and other work for the project, a residential subdivision known as
    Terra Vista. In a one-sentence letter dated December 31, 2007, Lender notified
    Contractor that “[f]inancing is in place for [Developer] for the residential subdivision
    named „Terra Vista.‟ ” The contract between Developer and Contractor provided for
    periodic payments, prior to substantial completion of the project. Upon substantial
    completion, Contractor was to receive the balance due on its contract less a 10%
    retainage. Contractor commenced work on the project and received periodic payments
    for 90% of the total work completed and approved.
    In November 2008, Derek Keck, Knox County Stormwater Department‟s primary
    inspector for the project, inspected the Terra Vista property and found it in violation of
    environmental regulations requiring stablization and erosion control of the newly
    excavated and graded soils. Keck stated in his affidavit:
    on November 18, 2008, Knox County Stormwater issued a
    Notice of Violation to the owner of the Project . . . [I]t was
    noted that all grading of the Project was final but that no
    stabilization as is required by environmental regulations had
    been performed. It was my understanding that [Contractor]
    was the contractor on the Project responsible for stabilization
    of the exposed and graded portions of the Project.
    *      *      *
    On November 21, 2008, [Contractor] gave Notice of
    Termination - Storm Water Discharges Construction Activity
    to TDEC [Tennessee Department of Environment and
    Conservation] for the Project with the explanation: “Due to
    financial decline in the economy we are no longer working at
    the job site. . . .”
    2
    The Project was not substantially complete at this time. My
    understanding is that [Contractor] pulled off the Project
    because it was not being paid.
    *       *    *
    Following a change in ownership, on March 19, 2010, I
    prepared and my supervisor forwarded a Notice of Violation
    to [Lender] documenting that: “An inspection of your site on
    March 17 found your site to be deficient in this area.
    Approximately 75% of this property is not adequately
    stabilized. All raw areas should be stabilized. Prior to
    applying stabilization measures, any rills and ruts should be
    regraded.”
    On or about March 17, 2010, I took numerous photographs
    documenting the lack of stabilization and incomplete
    condition of the Project. . . . [T]hey document the lack of
    stabilization on the Project through March 17, 2010, but this
    lack of stabilization on the Project existed at least from
    November 2008.
    [Lender] undertook stabilization through a contractor other
    than [Contractor] which was not completed and signed off on
    by Knox County Stormwater, and the Knox County Law
    Director‟s Office, until November 1, 2010.
    (Paragraph numbering in original omitted.)
    According to the affidavits of Contractor‟s shareholders, Contractor “substantially
    completed the project on February 11, 2009.” They further stated as follows:
    Essentially, [Contractor] cleared, excavated and graded the
    entire Terra Vista development. We cut all the roads of the
    subdivision into the land, built ponds, implemented the
    drainage plan designed by the engineers, and installed all
    utilities, including sewer, water and electric into the
    subdivision. It was a turn-key job, and we did everything but
    lay the asphalt.
    *       *    *
    3
    Back in late November 2008, [Lender] suddenly and abruptly
    told us that the bank would no longer fund the project. We
    inquired about the retainage that [Lender] was holding and
    whether that would be disbursed to us. We were told it would
    not be so disbursed.        Nevertheless, we substantially
    completed the project and upheld our version of the
    Contracts. [Lender] was well aware that we completed our
    work, and that they were withholding the retainage that was
    fully owed under the Contracts.
    The contract between Developer and Contractor required the issuance of a
    certificate of substantial completion before final payment to Contractor would become
    due. No certificate was ever issued, and there is no proof in the record that Contractor
    ever requested the project engineer to issue one.
    As previously noted, following Developer‟s default under its agreements with
    Lender, Lender foreclosed in early December 2009 and took possession of the property as
    high bidder at the foreclosure sale. Lender hired another contractor to complete the Terra
    Vista project, expending an additional $410,556.60 above the roughly $2.5 million
    construction loan proceeds.
    Contractor brought this action alleging intentional and negligent misrepresentation
    by Lender. Contractor argues that Lender “made multiple false statements . . . that
    [Developer] was financially sound, that [Lender‟s] loan to [Developer] was „fully funded‟
    and that [Contractor] would be paid for the work it completed on the Terra Vista project.”
    Lender moved for summary judgment and filed, among other things, the affidavit of
    Lynn Vandergriff, special assets officer for Lender, which states:
    [Lender] foreclosed its deed of trust on the Project in
    December 2009. The Project was far from complete, so much
    so, that in March 2010, [Lender] received a Notice of
    Violation from Knox County Stormwater that 75% of the
    stabilization measures for the raw grading had never been
    implemented and that [Lender] would receive substantial
    daily fines if not immediately remedied.
    *      *      *
    4
    [Lender] funded $2,511,927.76 of the Loan to [Developer],
    which was in the initial amount of $2,515,500.00.2 In
    addition, [Lender] made payments toward completion of the
    Project . . . of $410,556.60, for total payments related to the
    Project of $2,922,484.36.
    Not only did [Lender] fully fund the Loan, to complete the
    unfinished work of [Contractor] on the Project, it expended
    an additional $406,984.36 above the Loan proceeds limit . . .
    for work on the Project.
    (Paragraph numbering in original omitted.) Following a hearing, the trial court granted
    Lender summary judgment, stating in pertinent part:
    [Contractor] has sued [Lender] for misrepresentation.
    [Contractor] alleges that employees of [Lender]
    misrepresented to [Contractor] that the project was fully
    funded and that they would be paid. At the time of
    [Contractor‟s] conclusion of their work, a 10% retainage in
    the amount of $220,119.17 was owed to [Contractor]. . . .
    The contracts that are relevant to the payment of funds to
    [Contractor] are the construction contract and the construction
    loan agreement. It is undisputed that the final payment of the
    retainage was dependent upon the issuance of a certificate of
    substantial completion by the project engineer. It is further
    undisputed that a certificate of substantial completion has
    never been issued. The reasons for failure of the project
    engineer to issue the certificate are the issues that relate to
    [Developer‟s] suit against [Contractor]. Nevertheless, the fact
    that no certificate has been issued is undisputed.
    The purported injury in this case is the failure to receive the
    final retainage held by [Lender]. Even if misrepresentations
    were made by [Lender], the proximate cause of [Contractor‟s]
    alleged injury is not based upon false or misleading
    statements. The proximate cause for their alleged injury is
    2
    There is a $3,000 discrepancy between this amount and the actual amount of the loan,
    according to the loan documents themselves, which were attached as an exhibit to Vandergriff‟s
    affidavit. The correct amount of the loan is $2,512,500, not $2,515,500. Lender argues that the
    amount stated in the affidavit is the result of a “scrivener‟s error.”
    5
    their failure to obtain the issuance of the certificate.
    Consequently, [Lender] has refuted an essential element of
    [Contractor‟s] claim and [s]ummary [j]udgment is
    appropriate.
    Additionally, the affidavit of Mr. Vandergriff establishes that
    the loan was fully funded. There may exist a four thousand
    dollar discrepancy in his affidavit and the actual loan amount.
    However, [Lender] eventually expended more on the project
    than the original loan required. Furthermore, the lack of four
    thousand dollars to a 2.5 million dollar loan could hardly be
    classified as a material misrepresentation. Consequently, the
    Court concludes that [Lender] has refuted an essential
    element of [Contractor‟s] claim, i.e. false statement.
    Summary [j]udgment in [Lender‟s] favor is warranted.
    The trial court also denied Contractor‟s motion to amend its complaint. Contractor
    timely filed a notice of appeal.
    II.
    The issues presented are (1) whether the trial court erred in granting Lender
    summary judgment on the ground that it negated two elements of Contractor‟s
    misrepresentation claims ‒ false statement and proximate causation; and (2) whether the
    trial court erred in denying Contractor‟s motion to amend its complaint.
    III.
    Regarding our standard of review of a grant of summary judgment, the Supreme
    Court has recently determined:
    Summary judgment is appropriate when “the pleadings,
    depositions, answers to interrogatories, and admissions on
    file, together with the affidavits, if any, show that there is no
    genuine issue as to any material fact and that the moving
    party is entitled to a judgment as a matter of law.” Tenn. R.
    Civ. P. 56.04. We review a trial court‟s ruling on a motion
    for summary judgment de novo, without a presumption of
    correctness.
    *      *       *
    6
    [I]n Tennessee, as in the federal system, when the moving
    party does not bear the burden of proof at trial, the moving
    party may satisfy its burden of production either (1) by
    affirmatively negating an essential element of the nonmoving
    party‟s claim or (2) by demonstrating that the nonmoving
    party‟s evidence at the summary judgment stage is
    insufficient to establish the nonmoving party‟s claim or
    defense. . . . The nonmoving party must demonstrate the
    existence of specific facts in the record which could lead a
    rational trier of fact to find in favor of the nonmoving party.
    Rye v. Women’s Care Ctr. of Memphis, MPLLC, No. W2013-00804-SC-R11-CV, 
    2015 WL 6457768
    , at *12, *22 (Tenn., filed Oct. 26, 2015) (italics in original). In making the
    determination of whether summary judgment was correctly granted,
    [w]e must view all of the evidence in the light most favorable
    to the nonmoving party and resolve all factual inferences in
    the nonmoving party‟s favor. Martin v. Norfolk S. Ry. Co.,
    
    271 S.W.3d 76
    , 84 (Tenn. 2008); Luther v. Compton, 
    5 S.W.3d 635
    , 639 (Tenn. 1999); Muhlheim v. Knox Cnty. Bd.
    of Educ., 
    2 S.W.3d 927
    , 929 (Tenn. 1999). If the undisputed
    facts support only one conclusion, then the court‟s summary
    judgment will be upheld because the moving party was
    entitled to judgment as a matter of law. See White v.
    Lawrence, 
    975 S.W.2d 525
    , 529 (Tenn. 1998); McCall v.
    Wilder, 
    913 S.W.2d 150
    , 153 (Tenn. 1995).
    Wells Fargo Bank, N.A. v. Lockett, No. E2013-02186-COA-R3-CV, 
    2014 WL 1673745
    ,
    at *2 (Tenn. Ct. App. E.S., filed Apr. 24, 2014).
    IV.
    The elements of a claim for intentional misrepresentation are as follows:
    (1) the defendant made a representation of an existing or past
    fact; (2) the representation was false when made; (3) the
    representation was in regard to a material fact; (4) the false
    representation was made either knowingly or without belief in
    its truth or recklessly; (5) plaintiff reasonably relied on the
    7
    misrepresented material fact; and (6) plaintiff suffered
    damage as a result of the misrepresentation.
    Stanfill v. Mountain, 
    301 S.W.3d 179
    , 188 (Tenn. 2009) (quoting Walker v. Sunrise
    Pontiac–GMC Truck, Inc., 
    249 S.W.3d 301
    , 311 (Tenn. 2008)). The Supreme Court
    further observed in Stanfill that “[t]o succeed on a negligent misrepresentation claim, a
    plaintiff must establish that: (1) the defendant supplied information to the plaintiff; (2)
    the information was false; (3) the defendant did not exercise reasonable care in obtaining
    or communicating the information; and (4) the plaintiffs justifiably relied on the
    information.” 
    Id. at 189.
    The allegedly false statement claimed by Contractor is Lender‟s assurance that the
    construction loan was “fully funded.” It is not disputed that Lender‟s agents made such a
    statement to Contractor. Neither is it disputed that Lender funded $2,511,927.76 of the
    construction loan, the initial amount of which was $2,512,500. Contractor argues that
    “what was supposed to be” the correct amount of the loan was $2,515,500, as stated in
    Vandergriff‟s affidavit, notwithstanding the fact that both the construction loan
    agreement and the construction disbursal agreement executed by Lender and Developer
    state that the loan is in principal amount of $2,512,500. As stated in its brief, Contractor
    further argues:
    [Lender] admittedly did not fully fund the loan prior to the
    foreclosure, as Lynn Vandergriff‟s affidavit states that
    [Lender] funded only $2,511,927.76 of what was supposed to
    be a $2,515,500.00 loan. The trial court found that this
    discrepancy “could hardly be classified as a material
    misrepresentation;” however, [Contractor] contends that the
    discrepancy is material and that it creates an issue of fact
    which should be submitted to a jury.
    (Emphasis in original; citation to record omitted.) Using the correct amount of the loan,
    Lender paid out $572.24, or 0.0228 percent, less than the $2,512,500 construction loan.
    Using Contractor‟s numbers, Lender funded $3,572.24, or 0.142 percent, less than the
    amount alleged by Contractor, $2,515,500. Either way, the resulting deficiency is not
    material. It is de minimus. Furthermore, the construction loan agreement provides as
    follows:
    COMPLETION OF IMPROVEMENTS BY LENDER. If
    Lender takes possession of the Collateral, it may take any and
    all actions necessary in its judgment to complete construction
    of the Improvements . . .
    8
    *      *      *
    In any event, all sums expended by Lender in completing the
    construction of the Improvements will be considered to have
    been disbursed to Borrower and will be secured by the
    Collateral for the loan.
    (Capitalization and bold font in original.) It is undisputed that, after Contractor pulled off
    the project, Lender made payments toward its completion to contractors other than
    plaintiff in the amount of $410,556.60. In addition, it is clear that the Lender funded
    roughly 99.98% of the construction loan to Developer. On appeal, Contractor argues that
    Lender did not “take possession” of the collateral property by foreclosing on it and
    purchasing it at the foreclosure sale. This argument is unpersuasive. We agree with the
    trial court that Lender‟s statement to Contractor that the construction loan was “fully
    funded” was neither false nor misleading.
    We further hold that the trial court correctly decided that the undisputed facts
    establish that the proximate cause of Contractor‟s alleged injury was its failure to request
    and obtain the project engineer‟s certificate of final completion as contractually required.
    The contracts executed by Developer and Contractor call for payments in the amount of
    90% of the work completed, until Contractor believes that all work is substantially
    complete. At that point, the agreements provide:
    When Contractor considers the entire Work ready for its
    intended use Contractor shall notify Owner and Engineer in
    writing that the entire Work is substantially complete (except
    for items specifically listed by Contractor as incomplete) and
    request that Engineer issue a certificate of Substantial
    Completion.
    (Emphasis added.) As can be seen, after the project engineer issues the certificate of
    substantial completion, final payment to Contractor becomes due and payable. It is
    undisputed that the project engineer did not issue a certificate, and there is no proof that
    Contractor requested one.
    The affidavits of Contractor‟s shareholders state that “we substantially completed
    the project on February 11, 2009.” Contractor‟s appellate brief does not address or
    mention the statements in the affidavits of Keck and Vandergriff that the project lacked
    sufficient stabilization and erosion controls. Keck‟s affidavit was supported by
    documentation of several notices of violation issued by the Knox County Stormwater
    9
    Department and numerous photographs showing the lack of stabilization and incomplete
    condition of the project from November 2008 through March 2010.
    The agreement between Contractor and Developer provides the following
    description of the work that Contractor agreed to complete:
    Contractor shall complete all Work as specified or indicated
    in the Contract Documents. The Work is generally described
    as follows:
    Clearing & grubbing, demolition of one existing house,
    removal of debris, grading and ditching to subgrade,
    construction of storm drain system, construction of detention
    pond and related structures, backfill and shaping behind
    curbs, construction of water distribution network,
    construction of sanitary sewer system, installation and
    maintenance of all erosion control measures, inspections and
    record keeping as required by storm water pollution
    prevention plans (SEPP), smoothing of lots after final grading
    completed, final soil stabilization according to storm water
    pollution prevention plan. All of the above as specified in the
    contract drawings and documents.
    (Emphasis added.) Lender, arguing that the proximate cause of Contractor‟s failure to
    receive the final 10% payment was due to Contractor‟s own failures, asserts that
    [a]s an experienced excavating and grading contractor,
    [Contractor] knew precisely what it was doing by abandoning
    newly graded earth without stabilization and erosion control
    in the middle of winter. The Project literally washed away.
    Even if we assume, arguendo, that the evidence is sufficient to create a genuine issue of
    material fact regarding whether Contractor actually completed all the work it contracted
    to do, it remains undisputed that no certificate of substantial completion was ever issued,
    a condition precedent to final payment.
    Contractor argues that the trial court erred in denying its motion to amend the
    complaint. The Supreme Court has provided the following guidance regarding our
    review of the denial of a motion to amend:
    10
    The grant or denial of a motion to amend a pleading is
    discretionary with the trial court. Harris v. St. Mary’s Med.
    Ctr., Inc., 
    726 S.W.2d 902
    , 904 (Tenn. 1987). Generally,
    trial courts must give the proponent of a motion to amend a
    full chance to be heard on the motion and must consider the
    motion in light of the amendment policy embodied in Rule
    15.01 of the Tennessee Rules of Civil Procedure that
    amendments must be freely allowed; and, in the event the
    motion to amend is denied, the trial court must give a
    reasoned explanation for its action. Henderson v. Bush Bros.
    & Co., 
    868 S.W.2d 236
    , 238 (Tenn. Workers‟ Comp. Panel
    1993). Although permission to amend should be liberally
    granted, the decision “will not be reversed unless abuse of
    discretion has been shown.” Welch v. Thuan, 
    882 S.W.2d 792
    , 793 (Tenn. Ct. App. 1994). Factors the trial court should
    consider when deciding whether to allow amendments
    include “[u]ndue delay in filing; lack of notice to the
    opposing party; bad faith by the moving party, repeated
    failure to cure deficiencies by previous amendments, undue
    prejudice to the opposing party, and futility of amendment.”
    Merriman v. Smith, 
    599 S.W.2d 548
    , 559 (Tenn. Ct. App.
    1979).
    In Branch v. Warren, 
    527 S.W.2d 89
    (Tenn. 1975), we
    discussed the effect of Rule 15.01 of the Tennessee Rules of
    Civil Procedure:
    The new Rules of Civil Procedure, in this
    regard “come not to destroy the old law, but to
    fulfill.” They were designed to simplify and
    ease the burden of procedure under the
    sometimes harsh and technical rules of common
    law pleading.        Accordingly, Rule 15.01
    provides that leave (to amend) shall be freely
    given when justice so requires. This proviso in
    the rules substantially lessens the exercise of
    pre-trial discretion on the part of a trial judge.
    Indeed, the statute (§ 20–1505, T.C.A.) which
    conferred a measure of discretion on trial judges
    was repealed and Rule 15 stands in its place and
    stead. That rule needs no construction; it means
    11
    precisely what is says, that “leave shall be
    freely given.”
    
    Id. at 91–92
    (emphasis added). Later, in Gardiner v. Word,
    
    731 S.W.2d 889
    , 891 (Tenn. 1987), this Court confirmed that
    Branch required trial courts to be liberal in allowing pretrial
    motions to amend.
    Cumulus Broad., Inc. v. Shim, 
    226 S.W.3d 366
    , 374-75 (Tenn. 2007) (emphasis in
    original).
    We have reviewed the proposed amended complaint filed by Contractor and
    compared it with the original complaint. It contains slightly reworded restatements of the
    initially filed causes of action. There are no new substantive allegations or assertions; it
    just rehashes the complaint in somewhat different and a few additional words. At oral
    argument, Contractor‟s counsel admitted that the proposed amended complaint “didn‟t
    change the substance of the misrepresentation claim; it did reword things a little bit just
    to make it more clear.” The proposed amendment was obviously futile and would not
    have changed the outcome of this case if it had been granted. The trial court did not
    abuse its discretion in denying the motion to amend.
    V.
    The trial court‟s summary judgment in Lender‟s favor is affirmed. Costs on
    appeal are assessed to the appellant, H & J Ditching & Excavating, Inc. The case is
    remanded for collection of costs assessed below, pursuant to applicable law.
    _______________________________
    CHARLES D. SUSANO, JR., JUDGE
    12