United States District Court, N.D. Georgia, Atlanta Division
For The Hanover Insurance Company, Plaintiff: Seth Mills, Jr., LEAD ATTORNEY, Mills Paskert Divers P.A., Tampa, FL; Timothy Neal Toler, LEAD ATTORNEY, Mills Paskert Divers, Atlanta, GA.
Steve Farrier, Defendant, Pro se, Alpharetta, GA.
ORINDA D. EVANS, UNITED STATES DISTRICT JUDGE.
This action involving contract and tort claims is before the Court on Defendant Stephen F. Farrier's Motion to Dismiss [Doc. 10] and Plaintiff Hanover Insurance Company's Motion for Partial Summary Judgment [Doc. 26]. For the following reasons, Farrier's Motion to Dismiss [Doc. 10] is GRANTED IN PART AND DENIED IN PART and Hanover's Motion for Partial Summary Judgment [Doc. 26] is DENIED AS MOOT IN PART and GRANTED IN PART.
Plaintiff Hanover Insurance Company (" Hanover" or " Plaintiff" ) is a commercial surety providing payment and performance surety bonds to contractors on public and private construction projects [Plaintiff's Statement of Material Facts (" PSMF" ), Doc. 26-2 ¶ 1]. Defendant Hermosa Construction Group, LLC (" Hermosa" ) provided construction services, materials, and labor on public and
private projects [Id. ¶ 2]. Defendant Gregory Page was the Chief Executive Officer and President of Hermosa and defendant Hermosa Realty [Id. ¶ 14, 45].
Defendant Stephen Farrier (" Farrier" or " Defendant Farrier" ) was employed by Hermosa from November 6, 2012 to August 31, 2013 [Id. ¶ 9]. Farrier was the controller for Hermosa from November 6, 2012 to March 31, 2013, at which point he became the Chief Financial Officer (" CFO" ) and Chief Operations Officer (" COO" ), positions he remained in until his departure in August 2013 [Id.]. Farrier was directly involved in the financial operations of Hermosa's business, including responsibility for financial planning, financial record-keeping, cash-flow management, accounts receivable and accounts payable, and financial reporting to Gregory Page [Id. ¶ 14]. Farrier had direct access to Hermosa's internal and project-related financial information and participated in determining how construction project funds would be applied and disbursed [Id. ¶ ¶ 12-13].
Between 2011 and 2013, Hanover issued payment and performance bonds on behalf of Hermosa on multiple public construction projects [Id. ¶ 4]. As a condition of those bonds, Gregory Page executed an Agreement of Indemnity (the " GAI" ) on behalf of Hermosa in favor of Hanover [see Pl. Ex. K, Doc. 26-13]. The GAI was signed on September 2, 2011 [see id.].
On or around January 31, 2013, Hermosa received a " Cure Notice" from the U.S. General Services Administration (" GSA" ), as project owner on one of the Hanover bonded projects (the " USAID project" ), stating as follows:
GSA has just become aware that Hermosa Construction Group has not been making prompt payments to their subcontractors. Such action reflects non-compliance to contractual requirements by Hermosa to make payment to their subcontractors within a period of 7 days after such amounts are paid to Hermosa by the Government. Thus, this non-compliance is found to be grounds for Termination of Default (T4D) per FAR Clause 52.249-8.
Therefore, under this CURE NOTICE, the Government seeks that Hermosa Construction Group cure this failure within 10 calendar days of receipt of this notice and forward to my attention your plan of action that Hermosa will take to cure this failure or GSA will start process toward T4D.
[PSMF P 15; see also Pl. Ex. G, Doc. 26-9 (emphasis omitted)].
At the time of the Cure Notice, Hermosa owed its subcontractors and suppliers approximately 2 million dollars on the USAID project, an amount which exceeded Hermosa's contract balance on the project by at least 1.5 million dollars [Farrier Dep., Pl. Ex. F, Doc. 26-8 at 124-26]. This meant that Hermosa was not in a position to pay its subcontractors solely from project funds [see id.].
As a consequence of its substantial shortfall on the USAID project, Hermosa requested Hanover's assistance in satisfying its outstanding debts [PSMF ¶ 18; see also Pl. Ex. H, Doc. 26-10]. On or about April 30, 2013, Hermosa and Hanover entered
into a Contract Funds Disbursement Agreement (the " FDA" ) [Pl. Ex. J, Doc. 26-12]. The FDA, which incorporated by reference the earlier GAI, provided that any and all funds due or to become due to Hermosa on construction projects bonded by Hanover would be deposited into a " Disbursement Account" and disbursed pursuant to the terms and conditions of the FDA, which required Hermosa to submit a written Vendor Payment Request and Certification for valid project costs, requesting and authorizing Hanover to make specific disbursements from the account to Hermosa's subcontractors or suppliers or directly to Hermosa [see id. at 4]. Farrier and Gregory Page signed the FDA as Hermosa's designated agents [Farrier Dep., Doc. 26-8 at 151-53].
As a further condition of Hanover's financial assistance, Hermosa submitted " Letters of Direction" to each of the government entity owners on the Hanover bonded projects. In relevant part, each letter stated:
[Hermosa] hereby acknowledges and ratifies its prior assignment of funds due under the above referenced contract and further irrevocably directs that any and all payment due, or to become due hereafter, of any kind or nature, on account of the above-described contract and Project shall be made payable to [Hanover] . . . . These funds are trust funds, which will be utilized to ensure payment to the project's subcontractors, materialmen, and laborers.
[Pl. Ex. I, Doc. 26-11 (emphasis in original)]. Farrier signed the Letters of Direction on behalf of Hermosa [see id.], and stated in his deposition that the purpose of the letters was " [t]o direct contract funds [directly] to Hanover" [Farrier Dep., Pl. Ex. F, Doc. 26-8 at 149].
Though not entirely clear from the record, it appears that those signed Letters of Direction were sent by Hermosa to Hanover's consultant, Nicholson Consulting, to be sent out to the government entities on Hanover bonded projects. On May 29, 2013, Hermosa's counsel emailed Hanover's counsel to inform him of a " very serious problem," namely that Nicholson Consulting had issued Letters of Default along with the Letters of Direction to all of the project owners [see Def. Ex. L, Doc. 28-1 at 83]. Later that day, Hanover's counsel responded in relevant part:
I am just learning of this situation. It appears that rather than send me (as Escrow Agent) the Voluntary Letters of Default and then send Nicholson the Letters of Direction as [Hanover] requested . . . BOTH the Voluntary Letters of Default and the Letters of Direction were inadvertently sent to Nicholson Consulting. From what I currently understand, and that is not much, once received by Nicholson, their administrative staff simply forwarded both letters on to the [project owners] . . . . First, you have both my and Hanover's sincerest apologies. We need to jointly issue a retraction to the Voluntary Letters of Default tomorrow morning and correct the situation. . . .
[Id. at 81-82 (emphasis in original)]. It appears that the retraction letters were sent the following day [see id. at 80].
Between April 30, 2013 and August 24, 2013, Hermosa received a total of $961,505.18 in contract funds on Hanover bonded projects [PSMF ¶ 29]. Attached ...