Clarke Builders, Inc. v. D. Scott Corman et al. (2014)

MEMORANDUM OF DECISION RE MOTION TO DISCHARGE MECHANIC'S LIEN (116.00)

I. Background

In this hotly contested action the plaintiff Clarke Builders, Inc. sues the defendant Corman alleging that it is owed over $500,000 in connection with materials and services rendered during the construction of Corman's residence in Greenwich, Connecticut.   The co-defendant Richard Wiley holds a recorded mortgage on the property that has escalated from $3.5 million in January 2010 to $8.0 million in September 2011.   Clarke Builders seeks to foreclose on the mechanic's lien it filed and recorded in January 2012 in the amount of $502,335.20.   Corman and Wiley have jointly moved to discharge the lien.

The defendants have answered the complaint, disputing Clarke Builders' claims, asserted several special defenses, and in Corman's case, asserted a counterclaim against Clarke Builders for breach of contract and violations of the Connecticut Unfair Trade Practices Act, General Statutes §§ 42–110a et seq.  (CUTPA).  Corman contends that David Dall along with Clarke Builders was a party to the construction contract with Corman for the residence.   Dall testified in March 2013 that he had been the president of Clarke Builders for approximately four years.   Tr. I, 3.¹ In Dali's answer to the counterclaim he denies he was a party to the construction contract and asserts that at all times he was acting as an agent of Clarke Builders.

II. Scope of Review

Mechanic's liens are a creature of statute in Connecticut.   At a hearing of an application to discharge a mechanic's lien, the lienor, here Clarke Builders, is required first to establish there is probable cause to sustain the validity of the lien.   A lienee, here Corman or Wiley, may be heard and attempt to prove by clear and convincing evidence that the lien should be reduced or discharged entirely.  General Statutes § 49–35b(a) and (b).  The burden of proving probable cause is the same as the burden for establishing the right to a prejudgment remedy.   See Pero Building Co. v. Smith, 6 Conn.App. 180, 182–83 (1986).  “Probable cause” has been regularly defined by Connecticut courts as “a bona fide belief in the existence of the facts essential under the law for the action, and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances in entertaining it.”   See e.g. TES Franchising, LLC, v. Feldman, 286 Conn. 132, 137 (2008);  Ledgebrook Condominium Association, Inc., v. Lusk Corporation, 172 Conn. 577, 584 (1977);  Wall v. Toomey, 52 Conn. 35, 36 (1884).   This rather distended definition has been held to mean that the burden of proof required to establish probable cause is less than proof by a preponderance of the evidence, and it does not demand that a belief be correct or more likely true than false.   TES Franchising, supra, 286 Conn. 137;  CC Cromwell Ltd. Partnership v. Adames, 124 Conn.App. 191, 194 (2010).

“Clear and convincing evidence” is a “heightened” burden of proof above the normal civil standard of preponderance of the evidence, although less stringent than the criminal standard of “beyond a reasonable doubt.”   See, e.g. Stuart v. Stuart, 297 Conn. 26, 49–50, where the Connecticut Supreme Court refers to the “clear and convincing” standard as a “heightened” burden.

The clear and convincing standard of proof is substantially greater than the usual civil standard of a preponderance of the evidence, but less than the highest legal standard of proof beyond a reasonable doubt.   It is sustained if the evidence induces in the mind of the trier a reasonable belief that the facts asserted are highly probably true, that the probability that they are true or exists is substantially greater than the probability that they are false or do not exist.

Miller v. Commissioner of Correction, 242 Conn. 275, 794 (1997) (citation omitted, emphasis added by Miller court);  see also Dacey v. Connecticut Bar Association, 170 Conn. 520, 537 (1976) (applying same description of the clear and convincing standard in a civil case).

III. Background Facts

It is not unusual that residential construction disputes are accompanied by, if not premised on, miscommunications, misunderstandings, misplaced expectations, and higher than anticipated expenses.   This case has all of the above.

A hearing on the defendants' application to discharge the plaintiff's mechanic's lien was commenced on March 4, 2013.   During the course of that day's proceedings, and after the testimony of Dall, this court found there was probable cause to support the lien.   Because the hearing was not completed that day, and because the court ordered certain documents to be made available to the parties, the hearing continued on March 28, 2013.   The parties and counsel were advised at the end of that day to schedule a third day through the civil caseflow office to complete the testimony.   For reason unknown to the court, the final hearing was not scheduled until August 28, 2013.   Post-hearing briefs were filed in October, after a transcript became available.

Unfortunately for the court, the evidence presented by the parties on many aspects of the case was not very illuminating.   This situation was, in part, caused by a lack of effective communication about exchanges of documents leading to the anomalous situation that even on the third hearing day, almost six months after the hearing began, there were arguments about documents that had not been seen before and wrangles about others that were presented to be introduced into evidence without being pre-marked for identification.   All of this caused significant delays and disjointed presentations.   More importantly, the court was not aided by the convoluted, argumentative and repetitive questioning of witnesses which led to unresponsive answers, inconsistent answers and in some cases, no answers at all.

Clarke Builders began working with Corman in early 2009 doing site work and excavation at the Corman property located at 29 Doubling Road in Greenwich.   Until early 2010 there was no written contract between the parties, but the arrangement involved Clarke invoicing Corman for the cost of the work done by subcontractors plus 25% of that amount for Clarke's overhead and profit.   In that first year Clarke billed Corman between $300,000 and $500,000, including the 25% mark-up.   Tr. I, 11–12;  Ex. 1.² This amount was paid by Corman.

In January 2010 a written contract was executed.   It was signed by Corman and Dall. Ex. A. The contract was a standard form contract provided by the American Institute of Architects, “AIA Document A 102—2007” which describes itself as covering situations where “the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price.”  Id. Corman was represented by counsel;  Clarke and Dall were not.   Dall testified to his understanding that Clarke would continue to be paid on the basis of cost plus 25%.   Tr. I., 14.

Section 5.2.1 of the contract established the “Guaranteed Maximum Price” at $2.65 million.   According to Dall this figure was based on an earlier proposal and set of specifications.   Tr. I, 30–31.   Section 5.1.1 set the contractor's fee at 25% of the cost of the work.   Section 4.3 established the completion date of September 6, 2010.

It is undisputed that the final cost of the Corman home, with or without the fees of Clarke Builders, has exceeded $2.65 million.   Tr. II, 28–29.   Indeed, by April 2, 2011 Corman knew the project was over the GMP when he received an email from Dall estimating the costs to complete the residence.   Tr. III, 18–19;  Ex. 27.   In May 2011 a “heated” discussion took place between Corman and Dall. Tr. I. 124;  Tr. II, 24.   Corman described the meeting as taking place in the unfinished master bathroom and covering supervision by Clarke, the GMP, errors in Clarke invoices, and that Corman wanted to pay the major subcontractors directly.   Tr. I, 118–20.   Corman described his most important concern was to get Dall to spend more time and quality attention on the project, Tr. II, 24.

After the master bathroom meeting, Corman did pay the major subcontractors directly.   There were subsequent disputes that apparently arose although they were not described well, or at all, in the testimony but are adverted to in email exchanges.   For instance, in June 2011 there was an email exchange between Clarke Builders and the Cormans wherein an obviously worried and distraught Dall expressed concern that the subcontractors were getting paid on the project, but Clarke was not, and pointing out that the subcontractors lowered their prices by a minimum of 25% in consideration of the opportunity to work on Clarke's projects.   Ex. 19.   Corman answered the next day:  “I understand your concern and want you to know that we are not attempting to cut you out of the fees you are entitled to.”   Continuing, Corman described the change as a way to ensure the subcontractors were paid and not “intended to abuse your Clarke discount.”   Ex. 20.

Later, there was an apparent altercation between Dall and Susan Corman at which time one of the subcontractors testified Clarke was “supposedly fired.”   Tr. III, 74.   The evidence on this subject is very incomplete and unclear, but Dall kept working on the site.   However, on August 24, 2011 Dall communicated to Corman what needed to be done on the project and stating he must inform Greenwich authorities that he is no longer on the job, and the possible consequences of that until Corman gave proof that he was the person in charge with appropriate insurance and workers' compensation coverage.   Ex. 21.   Susan Corman replied on August 25 that Clarke had not been fired, and that he still had “all” the duties of project manager.   Ex. 22.   Two additional emails from the Cormans confirmed the above and said Clarke was not needed at the site because he was never there anyway, and all payments to Clarke “guaranteed in the contract” would be made.   Exhs. 23, 24.

IV. Discussion

Clarke Builders' mechanic's lien is based on the overhead and profit fees allegedly owed to it plus amounts due and owing to subcontractors.   Dall testified that Corman owed Clarke $359,000 in fees, and the remainder of the $502,335.20 represented unpaid subcontractor services and materials.   Tr. I, 44.   At the second day of the hearing counsel for Clarke stated the lien was made up of “two facets”:  $350,000 to Clarke and $143,000 owed to Subcontractors.   Tr. II, 9. Clarke's attorney repeatedly attempted to introduce a document, Exhibit 1A for identification, listing amounts still owed to subcontractors, but an objection on hearsay and other grounds was sustained.³  Based on testimony by Dall on cross examination and testimony by Corman on direct, the court makes the following findings:  (1) the subcontractors allegedly owed money making up part of the lien were Luis Drywall, Quality Stairs, Tri Tech Mechanical, JTT Construction, O & G Industries, United Site Services, Rozmus Plumbing, RM Harris Electrical, Patterson Masonry and Verdi Tile;  Tr. I, 125;  (2) the subcontractors who were eventually fully paid, before or after the placing of the lien were, as conceded by Clarke, Tri–Tech, JTT, United Site Services and Rozmus.   Tr. I, 95–96, 153.   Dall did not agree that Luis Drywall had been paid in full, but still had a balance due of $15,000.   Tr. I, 95–97.   There was no testimony about O & G, R.M. Harris Electric and Verdi Tile. The masonry subcontractor John D. Patterson testified he was owed some money.   Tr. III, 64.   The problem here is that the court is not aware of any document admitted into evidence during the hearing breaking down by subcontractor and amount, what part of the lien is based on monies owed subcontractors.

Corman submitted considerable evidence about payments to subcontractors either before or after the lien was in place.   For instance, Victoria Perez, the office manager-bookkeeper for subcontractor Quality Stairs, Inc. testified that her company only received payments for services at 29 Doubling Road from Corman through credit card payments of $18,889.20 and $4,100.   Tr. II, 106–09;  Ex. Q. The court's reading of Exhibit Q (described by Ms. Perez as the “entire history” of Quality Stairs participation in the Corman project) indicates that two invoices were paid by Corman's credit card and one invoice, for $24,020.04, remains unpaid.   While Corman contends that he overpaid for Quality Stairs' work, there is no contention that the $24,020.04 was ever paid.   It is possible that figure represented an estimate, but that interpretation is contrary to what the document says.   Unbelievably, not one of the three attorneys involved in this matter asked Ms. Perez whether Quality Stairs was owed any money on the Corman project!

With respect to Corman's claim that he overpaid for Quality Stairs' work, this is premised on testimony and Exhibit K, an October 31, 2010 Clarke Builders' invoice which included and attached two estimates from Quality Stairs totaling $36,436.10.   Corman paid this Clarke invoice, over a period of time, giving rise to what appears to be a justified claim that somehow that money did not get to Quality Stairs in light of Perez's testimony that the payments received on the Corman project came from Corman, and not Clarke.   Whether this claim was adjusted by the credit of $100,000 given Corman by Clarke in June 2011 is unknown to the court.   See Tr. II, 22–23;  Ex. 1, p. 4.

Corman also called Valerie McCollum as a witness who identified herself as controller for Richardson Gypsum, a company that supplied drywall to Luis Drywall at 29 Doubling Road. She testified that Exhibit J was a Richardson invoice to Luis Drywall for $30,040.53 which was paid by a Visa credit card, but not by Luis Drywall.   Tr. II, 65.   Presumably, McCollum was called to show that either Richardson was not paid, or was paid by Corman.   She testified to neither fact as she was not able to identify who paid Richardson.   The court notes that Exhibit 5, a Clarke invoice to Corman dated June 24, 2011, states that $30,040.53 was paid by Dall through a credit card.

The court finds:  (1) there is clear and convincing evidence, based on Dall's own testimony, that Tri–Tech, JTT, United Site Services and Rozmus Plumbing have been fully paid and the mechanic's lien shall be reduced by $9,600 (attributable to Tri–Tech), $11,000 (attributable to JTT) $1,000 (United Site Services) and $4,209.80 (Rozmus Plumbing); ⁴  (2) there is evidence based on Corman's testimony, the portion of Ex. 1A referred to, and the lack of any rebuttal evidence by Clarke that R.H. Harris Electric ($47,784.60) and Verdi Tile ($600.00) have been fully paid.   Because of the lack of rebuttal, the court finds this evidence to be clear and convincing;  (3) there is clear and convincing evidence that portions of what was once owed to some subcontractors has now been paid and the Clarke lien should only include $15,000 for Luis Drywall (a reduction of $7,284), $18,494.89 for Patterson Masonry (a reduction of $22,000) and $2,314.65 for O & G Industries (a reduction of $1,394.92;  (4) there is not clear and convincing evidence that Quality Stairs,⁵ Patterson Masonry ($18,494.89) or Luis Drywall have been fully paid.   Therefore, the lien should be reduced by $104,873.32.

The court now turns to the remaining amount of the mechanic's lien which, to its understanding, is about $350,000 based on allegedly unpaid fees earned by Clarke.   This amount represented Clarke's 25% fee for overhead and profit based on subcontractors' invoices and charges arising from approximately May 2011 through the end of that year.   See Exhibits 1, 3–9.   Corman testified that he stopped paying the Clarke fee after May 2011.   Tr. III, 40–44.

Corman contends there are several reasons why Clarke was not entitled to these fees.   First, Clarke had already been paid more than he was entitled to under the contract;  i.e. Corman asserts he had already paid $75,000 more in such fees than the 25% of the $2.65 million GMP Clarke was entitled to as a maximum, $662,500.   Second, Clarke failed to supervise the project in 2011 when the purported fees arose.   Third, the contracted time for project completion was not met, and therefore, payment was not due, and fourth, Corman asserts that Clarke's billing practices were shoddy and allowed for Corman allegedly paying more than $300,000 than the subcontractors' invoices actually called for.

After careful consideration, the court determines that Corman has not established by clear and convincing evidence that the lien should be discharged or reduced further.   The court reaches this conclusion for several overlapping reasons.   The contractual limitation argument has not been proven to the necessary standard.   The construction project was going, and went, considerably over the GMP, a fact known to Clarke and Corman by early April 2011 and probably well before that time.   Corman was aware as February 2011 that the invoices for past work completed were already “close” to the GMP with obviously much more to come.   There is no evidence that any written change orders were signed;  in fact, there was no testimony about change orders at all.   But it is clear there were significant changes to the project from its inception, although the parties dispute, and this court cannot resolve on the record before it, the full monetary extent of them.   For example, Dall testified that large changes involved the septic system, foundation alterations for the installation of a large fish tank, and most importantly, significant changes in the electrical wiring and the HVAC system to accommodate the introduction of a “smart home” system which included thumb print key pads, magnetic door strikes, automated lighting and shade systems, among other things.   Tr. I, 33–34.   According to Dall, these changes increased the price by $1.2 million. ($500,000 for the electrical work alone.)  Id., 33–34.   The extent and cost of the changes is disputed by Corman, although he conceded that the wiring took longer than expected.   Tr. I, 118.   John D. Patterson, who was assisting Clarke in supervising the job, testified there were substantial changes in, among other things, the house framing that had to be altered to accept changes in the electrical system, and there was expensive additional trim work required for the electrical shutters on the first floor.   Tr. III, 49, 56, 64.   This was extra work done by the subcontractors Clarke was responsible for.   Based on the record before it, the court determines there was an certainly a basis for one or more change orders that would have increased the GMP, perhaps significantly, and why there were no change orders must be left to further discovery.

Second, while Corman contends that once the GMP was exceeded, Clarke was no longer entitled to a fee does not comport with his prior behavior and actions.   Corman testified that in May 2011 he was concerned “how we were going to handle the guaranteed maximum price” at the master bathroom meeting, although he understood “we were well beyond” the GMP. Tr. 11, 24, 25.   When the contract was signed Corman testified he told Dall, in response to a question of what would happen if the GMP was exceeded, that it would depend on the reasons for the overage.   Tr. I, 116.   These less than definitive statements coupled with the communications noted above in June and August 2011 about Corman paying Clarke, evinced a flexibility about those fees at odds with the position Corman takes now.

The fact that the completion date set in the contract was not met, is not clear and convincing evidence that the entire lien should be discharged.   Corman argues that Clarke's lack of compliance with Section 12.1 of the contract is a basis to find no probable cause for the lien.   This argument overlooks that the court found probable cause for the lien on March 4, 2013 and the statutory and caselaw authority cited by plaintiff that contract provisions about when a payment is due do not undercut a plaintiff's statutory right to file a lien.   See Pl. Memo., March 4, 2013, Dkt. Entry 133.00, p. 2.

There is not clear and convincing evidence that Clarke's purported lack of supervision is reason to discharge or reduce the lien.   Corman, understandably, emphasizes one part of the testimony of Patterson, the masonry subcontractor on the project.   Patterson testified he also rendered supervisory services for Dall on the Corman project from start to finish.   Tr. III, 47, 65.   He was hired to help out, “to make sure things were done when he [Dall] couldn't be there.”  Id., 66.   Patterson testified that “there were times when he couldn't be there that would have helped.”  Id. However, Patterson disagreed that construction was not progressing well.  “I don't believe that was the case.”  Id., 68 Rather than the suggested several times, Patterson only remembered one instance Dall's absence was brought up at a project meeting.   Id., 69.   On the single occasion there was recognition that there was constant contact with Dall. Id., 71.   There was no evidence that Dall provided no supervision from May 2011 on, and there was evidence that when he was not present he had arranged for Patterson to act in his stead.

The court finds no clear and convincing evidence that the lien should be discharged because Clarke's bookkeeping and invoicing resulted in Corman overpaying for work on the project.   Frankly, the record on this issue is very incomplete and needs to be fleshed out by discovery and investigation in the course of the litigation.   Two witnesses called by Corman regarding Quality Stair and Richardson Gypsum failed to establish this point, as discussed earlier.   Corman acknowledged that Clarke made a $100,000 adjustment in his favor following the master bathroom meeting.   Tr. 11, 22–23;  Ex. 1, p. 4. Corman testified he thought he was owed more, but did not follow up.  Id., 23.   When all the facts are developed and under a normal civil standard of proof, Corman may prove these overpayments, but at this time, under the applicable burden of proof, he has not done so.

The two major issues in this dispute are the significant cost overruns above the GMP and the delay in completion of the project.   Based on the limited and somewhat confused record before it, the court finds the responsibility for these issues to be shared by Clarke and Corman.   There were significant changes and additions to the project.   While Corman paid directly for some of these changes, the changes required substantial additional work by the subcontractors hired by Clarke, which was responsible for supervising and paying.   Much of this work could, and perhaps should, have been incorporated into change orders which would have increased the GMP. As to the completion date, the original date of September 2009 seems completely artificial, and in his email to Dall just after the contract was signed, Corman does not seem concerned about the contract provisions.   Ex. 15.   Nevertheless, the schedule did fall out of control, and parts of this are certainly attributable to Clarke's supervision as well as the additional work.

Because there were project changes that, in this court's view, should have resulted in a higher GMP and because there was supervision provided to the project, albeit far less than Corman wished, the court finds an insufficient basis to reduce the lien further, or to discharge it.

V. Conclusion

For the above reasons, the challenged lien is not discharged, but is reduced, as discussed above, to $397,461.88.   Counsel may submit, on notice to all parties, an appropriate order, suitable for filing on the land records, reflecting the reduction of the lien.

TAGGART D. ADAMS

JUDGE TRIAL REFEREE

FOOTNOTES

FN1. References to “Tr.” followed by a Roman numeral and then an Arabic number are to the transcript of the hearing on defendants' joint motion for discharge of mechanics lien which took place on three separate days:  March 4 (Tr. I) March 27 (Tr. II) and August 28, 2013.  (Tr. III)..  FN1. References to “Tr.” followed by a Roman numeral and then an Arabic number are to the transcript of the hearing on defendants' joint motion for discharge of mechanics lien which took place on three separate days:  March 4 (Tr. I) March 27 (Tr. II) and August 28, 2013.  (Tr. III).

FN2. Dall testified the amount was $400,000 or a little more.   Tr. I, 29.   Exhibit 1 indicates that about $330,000 was billed by December 3, 2009 and over $500,000 was billed by January 5, 2010..  FN2. Dall testified the amount was $400,000 or a little more.   Tr. I, 29.   Exhibit 1 indicates that about $330,000 was billed by December 3, 2009 and over $500,000 was billed by January 5, 2010.

FN3. See the further discussion of Exhibit 1A for identification at n.4 infra..  FN3. See the further discussion of Exhibit 1A for identification at n.4 infra.

FN4. These amounts come from the second page of Ex. 1A to which the court sustained an objection.   See Tr. I, 41–45.   In hindsight, the court should have allowed at least that page into evidence, if only because it is the only evidence as to the amount owed to subcontractors included in Clarke's lien.   Therefore, the court treats that second page as a full exhibit..  FN4. These amounts come from the second page of Ex. 1A to which the court sustained an objection.   See Tr. I, 41–45.   In hindsight, the court should have allowed at least that page into evidence, if only because it is the only evidence as to the amount owed to subcontractors included in Clarke's lien.   Therefore, the court treats that second page as a full exhibit.

FN5. The situation with Quality Stairs, described above, is confusing.   But, the existence of an outstanding invoice shown on Ex. Q, an exhibit offered by Corman, precludes a finding by clear and convincing evidence that Quality Stairs has been fully paid.   If counsel and the parties and Quality Stairs can agree as to what, if anything, is owed, the court will entertain making a further adjustment to the lien..  FN5. The situation with Quality Stairs, described above, is confusing.   But, the existence of an outstanding invoice shown on Ex. Q, an exhibit offered by Corman, precludes a finding by clear and convincing evidence that Quality Stairs has been fully paid.   If counsel and the parties and Quality Stairs can agree as to what, if anything, is owed, the court will entertain making a further adjustment to the lien.

Adams, Taggart D., J.T.R.