Swami, Inc. v. Franklin Drywall II, LLC

Pursuant to Ind. Appellate Rule 65(D),
this Memorandum Decision shall not be
regarded as precedent or cited before
any court except for the purpose of Apr 29 2013, 8:27 am
establishing the defense of res judicata,
collateral estoppel, or the law of the case.
ATTORNEY FOR APPELLANTS: ATTORNEY FOR APPELLEE:
C. GREGORY FIFER STEPHEN W. VOELKER
Applegate Fifer Pulliam LLC Voelker Law Office
Jeffersonville, Indiana Jeffersonville, Indiana
IN THE
COURT OF APPEALS OF INDIANA
SWAMI, INC., et al., )
)
Appellants-Defendants, )
)
vs. ) No. 10A01-1208-MF-398
)
FRANKLIN DRYWALL II, LLC, )
)
Appellee-Plaintiff. )
APPEAL FROM THE CLARK CIRCUIT COURT
The Honorable Susan L. Orth, Special Judge
Cause No. 10C01-0909-MF-715
April 29, 2013
MEMORANDUM DECISION - NOT FOR PUBLICATION
BRADFORD, Judge
Appellant-Defendant Swami, Inc. contracted with Appellee-Plaintiff Franklin Drywall
II, LLC, for the completion of certain drywall work. Prior to execution of the contract terms,
Swami terminated the contract. Franklin Drywall filed a mechanics lien for the outstanding
funds it claimed to be owed by Swami and subsequently filed suit to foreclose on its lien.
Below, the parties disputed whether certain delays in completing the drywall work
were the fault of Franklin Drywall and whether the work was completed in an acceptable
fashion. Following a bench trial, the trial court found in favor of Franklin Drywall. The trial
court also awarded Franklin Drywall attorney’s fees. We conclude that the trial court’s
determination that Franklin Drywall was entitled to recover $48,681.60 was not clearly
erroneous, the trial court did not err in awarding attorney’s fees to Franklin Drywall, and the
trial court erred in finding that a certain mortgage debt should not be considered to be a lien
against the property in question. Consequently, we affirm in part, reverse in part, and remand
for further proceedings consistent with this memorandum decision.
FACTS AND PROCEDURAL HISTORY
Swami is a Georgia corporation which owns certain real estate in Clark County,
where, in early 2009, it planned to build a Days Inn Hotel (the “Property”). On January 14,
2009, representatives for Swami and Franklin Drywall entered into a contract (the
“Contract”) for the completion of certain drywall work at the Property by Franklin Drywall.
For the most part, Swami was represented in the relevant negotiations and interactions by
Umang Bhatt (“U. Bhatt”) and Ramesh Bhatt (“R. Bhatt”), and Franklin Drywall was
represented by its owner, Adrian Franklin. The relevant portions of this Contract appear
2
below, verbatim:1
(1) All work shall be performed in accordance with commercial code and
standard adopted by Clark County, State of Indiana and requirements of the
authorities having jurisdiction. Also this work to be performed and material
must be use as Owner and Wyndham corp. (Days and Suites) final approval.
Subcontractor shall be responsible for all OSHA rules.
(2) This agreement consist of conditions of the contract (General,
Supplementary and other conditions), Drawing, Specifications, Addenda,
issued prior to execution of this Agreement, other documents listed in this
Agreement and Modifications issued after execution of this Agreement. These
form the contract, and are as fully a part. Of the Contract as if attached to this
Agreement or repeated herein. The Contract represents the entire and
integrated agreement between the parties hereto and supersedes prior
negotiations, representations or agreements either written or oral. An
enumeration of the contract documents, other than modification, appears in
Item No 11
(3) Scope of Work (The Work of this Contract)
Attach Exhibit “A”
All work shall be completed in timely fashion as specified in Exhibit “A”
(4) Total Contract Sum
Total price for labor, materials, equipments and tools for this contract is
$106,000
****
(6) If the Subcontractor defaults or neglects to carry out the work in an
accordance with this agreement and fails to perform in satisfactory manners,
the Owner will notified to the Subcontractor. The Subcontractor may
commence and continue correction in timely manner. If work does not
performed in accordance with commercial code and standard or no reply from
the Subcontractor within 2 days, Owner my get work done by other agent at
expense of this the Subcontractor. In such case the Owner may cancel this
agreement by written notification to the Subcontractor without prejudice to the
other remedies the Owner may have.
****
(10) Any alteration and/or deviation from the drawing and specification
involved extra cost shall be in writing and shall be approved by the all parties
before proceeding the work.
(11) The Subcontractor warrants to the Owner that all materials, equipment
and Fixtures under this agreement will be good quality and new. The
Subcontractor guarantees also all work done under this agreement against
defective and/or fault workmanship for a period of year from completion of the
1
All correspondence between the parties appears verbatim.
3
project. Such defective work and/or equipment and fixture shall be replaced or
corrected without any additional cost to the Owner.
****
EXHIBIT “A’
Scope of Work
1. Preparation for Drywall
****
[2]
H There shall be knock down finish in all guest rooms, bathrooms,
pantry, manager room, work area, exercise room and vending area (three floors
hallways, lobby, registration and elevator entrance will be wallpaper. Rest of
area knockdown)
****
Total price for labor, materials, equipments, tools, other supply and services
including taxes $106,000.00[3]
****
Timetable for starting and completion
1. After completion of all require rough in and getting inspected owner
shall give five days to subcontractor notice to commence work. During this
time subcontractor shall order materials. Owner and subcontractor shall
acknowledge date and time of this notice.
2. Subcontractor shall have 2 weeks to hang all drywall and 2 weeks to
complete all dry wall work.
Penalties
1. Both party understand that there shall be total seven weeks (35 days) to
complete this work once owner give notice to commence work. There shall be
$ 500.00/week penalties after 35 days of contract. This penalty clause does not
prejudice other remedies the Owner may have.
Plaintiff’s Ex. 4, Appellants’ App. Vol. 1, pp. 143-46. The contract also provided a schedule
by which Franklin Drywall was to be paid.
On April 14, 2009, Franklin sent a letter to Umag Parag, a representative of Swami,
which stated as follows:
2
“Knock down” is a term of art used by drywall appliers. After the drywall is hung, a powdered mix
is mixed with water and sprayed on the wall. This gives a “splatter effect.” Once the mixture is sprayed on the
wall, a drywall knife is used to apple pressure to the applied mix to achieve the desired texture.
3
The parties added a handwritten sentence which was initialed by both parties and reads as follows:
“Except Owner will supply all paint for knock down.” Appellants’ App. p. 145.
4
I am writing this letter to inform you that Franklin Drywall II, LLC is not a
painting contractor. We were hired to hang, finish, splatter the walls and
popcorn the ceiling. You requested that paint be placed in the drywall mud at
your cost for the paint. I have no problem placing paint in the mud for the
walls but you must understand that if we have to paint the walls and ceilings,
there will be a charge of $2.50 a finished square foot for labor only. This is
per floor. (71’ x 184’).
Plaintiff’s Ex. 6. On or about April 15, 2009, U. Bhatt responded, in writing, to the April 14,
2009 letter from Franklin. In this writing the parties initialed a sentence that read: “Your will
compete wall and ceiling texture as we agreed according to contract at no additional change
order.” Defendant’s Ex. C.
The parties subsequently entered into a “Change Order” Amendment to the Contract
on May 7, 2009. The “Change Order” Amendment provided as follows:
Following is change agreed by and between Owner and sub contractor:
1. Sub contractor shall complete all knock down finish as agreed in our
original agreement dated 1/14/09. The knock down should have consistent
color, texture, and should resemble sample shown to sub contractor (sample #
litex [Commercial Texture System (“CTS”)] 1000). The knock down should
be a final finished product. If chipped (knock down) it should have same color
inside it.
2. Sub contractor shall clean, paint and install all doors and frames (should
be plum and lavel) in the new building (days and Suites) no glass door.
3. Sub contractor shall paint all bathroom ceiling, breakfast area ceiling
(white color without popcorn), staircases walls, laundries room, electrical,
water heater room. (except wall paper)
Timing:
2nd and 3rd floor should be completed (except drop ceiling) no later than May
15th 2009. 1st floor should be completed (except drop ceiling) no later than
May 22nd 2009. Owner makes final selection of drop ceiling panels. (Sand
Micro from certain teed)
All remaining work should be completed on later than May 31st 2009.
Owner and sub contractor jointly prepare punch list end of May 2009.
Payment:
1. Door $2,500.00
2. Painting $3,000.00
5
Total $5,500.00
Owner shall make final payment after completion of all agreed work less
material purchased for sub contractor for this work.
This agreement was reached after discussion of all issues and was paid 1st floor
hanging completely even though it was not finished. This was based on that
sub contractor will finish project completely work mentioned above.
Plaintiff’s Ex. 7, Appellants’ App. p. 149.
The parties encountered multiple delays in the completion of the project. Each party
alleged that the other party was responsible for said delays. For its part, Swami claimed that
Franklin Drywall failed to complete the work in a satisfactory manner in the timeframe stated
in the Contract. Specifically, Swami claimed that some of the knockdown finishing
completed by Franklin Drywall was defective and needed to be redone. Franklin Drywall
disputed these claims and asserted that any delays were caused by Swami or other
subcontractors hired by Swami. In an apparent attempt to resolve the parties’ dispute
regarding the delay and to have the project completed, Swami granted Franklin Drywall an
extension of time under which to complete the drywall work covered by the Contract.
In a letter to U. Bhatt dated June 15, 2009, Franklin informed U. Bhatt that he
believed that the delay in the project was caused by decisions and actions of Swami, not by
any act of Franklin Drywall. Franklin indicated that some of the delay was caused by
mistakes made by other subcontractors. Franklin further indicated that at least some of the
delay could be attributed to a delay in access to necessary supplies that were to be provided
by Swami, such as paint and hardware. In addition, Franklin informed U. Bhatt that some of
the requested repairs, which were not caused by, or the fault of, Franklin Drywall but rather
Swami and other subcontractors, would not be completed without additional compensation.
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Franklin also stated that he had been “100%” finished with the drywall hang, finishing, and
knock down on all three floors and the grid on the third floor for at least forty-five days but
had not been paid for the work. Plaintiff’s Ex. 8. On June 23, 2009, Swami terminated the
Contract with Franklin Drywall.
On July 20, 2009, Franklin Drywall filed a mechanic’s lien in the office of the Clark
County Recorder as Instrument Number 200913470. On September 24, 2009, Franklin
Drywall filed a complaint seeking to foreclose its mechanic’s lien against the Property.
Swami responded and filed a counterclaim against Franklin Drywall on October 14, 2009.
On March 15, 2012, following a bench trial, the trial court entered findings of fact,
conclusions thereon, and judgment in favor of Franklin Drywall. Soon thereafter, Franklin
Drywall filed a motion and supporting affidavit of its counsel seeking an award of attorney’s
fees. On April 16, 2012, Swami filed a motion to correct error, which was subsequently
denied by the trial court. This appeal follows.
DISCUSSION AND DECISION
Swami contends that the trial court erred in numerous ways. We restate Swami’s
contentions as follows: (1) whether the trial court erred in finding that Franklin Drywall was
entitled to recover $48,681.60; (2) whether the trial court erred in finding that Swami was not
entitled to set off some of the amount due to Franklin Drywall or recover under its
counterclaim against Franklin Drywall; (3) whether the trial court erred in finding that
Franklin Drywall was entitled to recover attorney’s fees; and (4) whether the trial court erred
in finding that a certain mortgage debt should not be considered to be a lien against the
7
Property.
When matters are adjudicated at a trial by the court without a jury, Trial Rule
52 governs the trial court’s use of findings and conclusions. Trial Rule 52
provides that a trial court “shall find the facts specially and state its
conclusions thereon” either sua sponte or upon “the written request of any
party filed with the court prior to the admission of evidence.” T.R. 52(A)
(emphasis added).
Upon appellate review, a judgment under Trial Rule 52 may be reversed
only when clearly erroneous, that is, “when the judgment is unsupported by the
findings of fact and conclusions entered on the findings.” Nelson v.
Marchand, 691 N.E.2d 1264, 1267 (Ind. Ct. App. 1998). Findings are clearly
erroneous when there is no evidence or reasonable inference from the evidence
to support the findings, and we review only the evidence and reasonable
inferences therefrom that are favorable to the judgment without reweighing
evidence or reassessing the credibility of witnesses. Id. We owe no deference
to a trial court, however, on matters of law, reviewing these de novo. Briles v.
Wausau Ins. Cos., 858 N.E.2d 208, 213 (Ind. Ct. App. 2006).
Argonaut Ins. Co. v. Jones, 953 N.E.2d 608, 614 (Ind. Ct. App. 2011), trans. denied.
I. Whether the Trial Court Erred in Finding that Franklin Drywall Was Entitled to
Recover a Total of $48,681.60
In arguing that the trial court erred in finding that Franklin Drywall was entitled to
recover a total of $48,681.60, Swami challenges a number of the trial court’s findings and
conclusions thereon. The trial court determined that Franklin Drywall was entitled to recover
$26,235.00 under the terms of the Contract, that Franklin Drywall held a valid mechanic’s
lien for this amount, and that Franklin Drywall was entitled to recover an additional
$22,446.60 for work completed in addition to the work included under the terms of the
Contract.
Swami argues that the trial court’s findings regarding the testimony of its expert, Alan
Muncy, were clearly erroneous. The trial court found that Muncy agreed with instructions
8
for the application of drywall mud and testified that it was necessary to apply primer before
applying the paint/drywall mud mix. Upon review, we conclude that the record supports
these findings. Specifically, Muncy testified that typically, “[y]ou prime the drywall prior to
the application of [the knock down] texture.” Tr. p. 146. In addition, the report generated by
Muncy and admitted as a trial exhibit indicated that a basecoat or primer was necessary to
obtain the desired knock down finish.
Swami also argues that Franklin Drywall could not hold a mechanic’s lien for an
amount in excess of the contract price. The trial court, however, found that Franklin Drywall
held a valid mechanic’s lien for $26,235.00, or the amount still owed to Franklin Drywall
under the terms of the Contract. As such, this finding is not clearly erroneous.
Swami also argues that the trial court erred in finding that the parties entered into an
oral agreement for Franklin Drywall to complete additional painting work and that Franklin
Drywall was entitled to compensation for this additional painting work. In support of this
argument, Swami claims that the painting work was not included in the original scope of the
project outlined in the Contract or in the Change Order Amendment to the Contract.
However, during trial, Franklin testified that the parties entered into a subsequent oral
agreement that Franklin Drywall should complete additional painting work and that Franklin
Drywall did complete this work. The trial court appears to have found Franklin’s testimony
to be credible because it found that the parties agreed that Franklin Drywall would complete
the additional work, Franklin Drywall completed the additional work, and, as a result, was
entitled to be paid for said work. The trial court determined the reasonable value of the work
9
was $0.60 per square foot and, based on this determination, found that Franklin Drywall
should be paid $22,446.60. This finding is not clearly erroneous. See generally, Gibson-
Lewis Corp. v. N. Ind. Pub. Serv. Co., 524 N.E.2d 1316, 1318 (Ind. Ct. App. 1988)
(providing that the Appellant was entitled to the quantum meruit value of its services in
completing work not covered by a written contract).
Moreover, we are unconvinced by Swami’s argument that Franklin Drywall is not
entitled to recover any additional money because it did not complete the agreed-upon work.
Franklin testified that he completed all drywall work under the Contract and that the work
passed inspection. Franklin testified that he had reached a subsequent verbal agreement with
representatives of Swami with respect to certain painting work that was completed by
Franklin Drywall, and that any deficiency in the work from Swami’s desired outcome was a
result of Swami’s decision to not complete the project in accordance with normal
construction procedures. In light of this testimony, the trial court found that Franklin
Drywall completed certain tasks and should be paid for such work. Swami’s claim to the
contrary merely amounts to an invitation for this court to reweigh the evidence, which we
will not do. Jones, 953 N.E.2d at 614.
II. Whether the Trial Court Erred in Finding that Swami Was Not Entitled to Set
Off Some of the Amount Due to Franklin Drywall or Recover Under Its
Counterclaim Against Franklin Drywall
Swami also contends that the trial court erred in failing to set off or reduce Franklin’s
award by the amount spent by Swami to cure Franklin’s allegedly deficient work. Swami
filed a counterclaim in which it asserted that Franklin Drywall breached the parties’ contract,
10
and, as a result, Swami was entitled to recover the money that it spent curing Franklin
Drywall’s allegedly deficient work. Following trial, the trial court determined that Swami’s
counterclaim should be dismissed and that Franklin Drywall was entitled to recover the full
amount remaining under the contract because any alleged deficiency in the work completed
by Franklin Drywall resulted from Swami’s actions, not any act of Franklin Drywall.
Generally, “[i]n breach of construction cases, the proper measure of damages is either
1) the difference between the value of the building as constructed and what its value would
have been had it been constructed in accordance with the contract, or 2) the reasonable cost
of curing the defects to make the building conform to the contract.” Clark’s Pork Farms et
al. v. Sand Livestock Sys., Inc., 563 N.E.2d 1292, 1297 (Ind. Ct. App. 1990). However, we
have previously concluded that “a contractor who builds a structure according to plans and
specifications supplied by the building owner is not to be held liable if the plans and
specifications prove defective.” Millner v. Mumby, 599 N.E.2d 627, 630 (Ind. Ct. App.
1992). We see no reason why this would not be equally true if the allegedly defective work
results from actions taken and decisions made by an owner of a property who is acting as a
general contractor of a construction project.
Swami’s challenge to the trial court’s decision is based on its claim that the work
completed by Franklin Drywall was deficient. Here, the trial court found that Franklin
Drywall “did what [it] was required to do under the contract and change order,” Appellants’
App. p. 13, that Franklin Drywall completed the work in a satisfactory manner, and that any
claimed non-satisfactory finished work product was a result of actions taken and decisions
11
made by Swami, not Franklin Drywall. Specifically, the trial court found as follows:
22. The specifications used by Swami were incorrect. The oversight done
by Swami on this project as the General Contractor was equally incorrect.
This combined to achieve Swami’s current problems with the drywall.
23. This contract became impossible to perform by Franklin. When a
contract becomes impossible, nonperformance is excused. Hipskind Heating
& Plumbing Co. v. General Industries, Inc., 194 N.E.2d 733 (Ind. App. 1963),
Leas v. Patterson, 38 Ind. 465 (Ind. 1871).
Appellants’ App. p. 13. As a result, the trial court determined that Franklin Drywall was
entitled to recover the full amount remaining under the contract and that Swami was not
entitled to any “set off” of the award.
The trial court’s findings are supported by the record. Franklin’s testimony indicated
that it was difficult for Franklin to communicate with representatives from Swami regarding
the project, that Swami and some other subcontractors damaged the completed drywall work,
that Swami acted in a manner which made it impossible for Franklin Drywall to complete the
work in a time frame and manner that satisfied Swami, and that Swami expected Franklin
Drywall to fix mistakes and clean up after other subcontractors at no additional cost.
Franklin testified that issues arose because Swami’s representatives did not have experience
with construction management. For example, Franklin testified that representatives from
Swami decided to have finishing products like doorjambs, tile, and bathroom counters
installed before the drywall work was complete, even though Franklin told them that the
drywall work needed to be completed first. According to Franklin, representatives from
Swami also waited until after drywall was hung to have some electrical work done that
should have been completed before drywall installation. This decision led to holes in the
12
drywall that were not caused by, or the fault of, Franklin Drywall. In addition, Franklin
Drywall had to have some of its work, specifically work on the ceiling, re-inspected because
of the deficient work of, or damage caused by, either Swami or other subcontractors.
Further, when Franklin notified representatives of Swami that Franklin Drywall would not
correct any more issues resulting from actions taken or decisions made by Swami or other
subcontractors without additional compensation, representatives from Swami removed
Franklin Drywall from the project.
In arguing that the trial court’s findings were clearly erroneous and that the award
should be set off by the additional costs incurred by Swami, Swami relies on the testimony of
U. Bhatt and Muncy. U. Bhatt testified that Swami had to spend approximately $47,000 to
cure the defects in Franklin Drywall’s work before it could open its hotel on the Property and
that he believed that the value of the Property was diminished by approximately $200,000 as
a result of Franklin Drywall’s allegedly defective work. Muncy, for his part, opined that the
drywall work was of poor quality and that it would cost approximately $191,000 to redo the
work at a commercially reasonable standard. Swami’s claim, however, amounts to an
invitation for this court to reweigh and reassess Franklin’s and Muncy’s testimony, which,
again, we will not do. See Jones, 953 N.E.2d at 614.
Because the trial court’s findings and conclusions thereon are supported by Franklin’s
testimony, we conclude that such findings are not clearly erroneous. As such, the trial court
did not err in determining that Swami was not entitled to have any of the funds awarded to
Franklin Drywall set off by the additional costs that it claims to have incurred in order to
13
complete the work at a satisfactory level.
III. Whether the Trial Court Erred in Finding that Franklin Drywall
Was Entitled to Recover Attorney’s Fees
Swami also contends that the trial court erroneously awarded unspecified attorney’s
fees to Franklin Drywall. Swami, however, concedes that the parties stipulated that under the
mechanic’s lien statute, Franklin Drywall would be entitled to attorney’s fees if it prevailed at
trial. Swami further concedes that a stipulation is a voluntary and binding agreement
between the parties.
After finding in favor of Franklin Drywall on the merits of its claims, the trial court
also found that Franklin Drywall was entitled to recover attorney’s fees. The trial court
limited the award of attorney’s fees to the sum of the mechanic’s lien. The trial court further
found that the specific amount of fees awarded would be decided at a subsequent hearing.
Swami has presented no authority suggesting that it was improper for the trial court to follow
this procedure in awarding attorney’s fees, and we fail to see how the trial court erred in this
regard. On remand, the trial court should conduct a hearing to determine the appropriate
award of fees, if it has not yet done so.
IV. Whether the Trial Court Erred in Finding that a Certain Mortgage
Debt Did Not Qualify as a Lien Against the Property
Swami contends, and Franklin Drywall concedes, that the trial court erred in finding
that MainSource Bank’s “Mortgage, Security Agreement, and Fixture Financing Statement”
dated July 10, 2009 (the “July 10, 2009 debt”), which financed the construction of the
Property, should not be considered to be a lien on the Property. It is undisputed that Swami
14
was administratively dissolved by the Georgia Secretary of State on May 16, 2008, but was
subsequently reinstated. The trial court found that because “[the July 10, 2009 debt] was
incurred after the dissolution of [Swami] it should not be considered to be a lien on the real
estate.” Appellants’ App. p. 8 (emphasis in original). However, Indiana Code section 23-17-
23-3(c) provides that “[w]hen reinstatement becomes effective, the reinstatement relates back
to and takes effect as of the effective date of the administrative dissolution and the
corporation resumes carrying on the corporation’s activities as if the administrative
dissolution had never occurred.”4
Because reinstatement relates back to and takes effect as of the date of the dissolution,
any business that was done by Swami during the period of dissolution, including securing a
loan to finance construction of the Property, would be considered corporate activity upon
reinstatement. See Ind. Code § 23-17-23-3(c). As such, the trial court erred in finding that
the July 10, 2009 debt should not be considered to be a lien against the Property.
CONCLUSION
In sum, we conclude the trial court’s determination that Franklin Drywall was entitled
to recover $48,681.60 was not clearly erroneous.5 We further conclude that the trial court did
not err in awarding attorney’s fees to Franklin Drywall or in ordering that the amount of said
award be determined following a hearing on the matter. In addition, we conclude that the
trial court erred in finding that the July 10, 2009 debt should not be considered to be a lien
4
Georgia law is the same as Indiana law in this respect. See Ga. Code Ann. § 14-2-1422.
5
Again, this award encompasses the $26,235.00 remaining to be paid under the contract as well as
$22,446.60 for additional work completed by Franklin Drywall.
15
against the Property. As such, we affirm in part, reverse in part, and remand to the trial court
for further proceedings consistent with this memorandum decision.
The judgment of the trial court is affirmed in part, reversed in part, and remanded.
ROBB, C.J., and CRONE, J., concur.
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