[Cite as Frank Novak & Sons, Inc. v. A-Team, L.L.C., 2014-Ohio-922.]
Court of Appeals of Ohio EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION No. 99777
FRANK NOVAK & SONS, INC. PLAINTIFF-APPELLEE/ CROSS-APPELLANT
vs.
A-TEAM, L.L.C., D.B.A. SERVICEMASTER DEFENDANT-APPELLANT/ CROSS-APPELLEE
JUDGMENT: AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-09-685057
BEFORE: Boyle, A.J., E.A. Gallagher, J., and Blackmon, J.
RELEASED AND JOURNALIZED: March 13, 2014 ATTORNEY FOR APPELLANT
Kevin J. Kelley Porter Wright Morris & Arthur 925 Euclid Avenue Suite 1700 Cleveland, Ohio 44115
ATTORNEYS FOR APPELLEE
Keith R. Kraus Grant J. Keating Dworken & Bernstein Co., L.P.A. 50 South Park Place Painesville, Ohio 44077 MARY J. BOYLE, A.J.:
{¶1} Defendant-appellant, A-Team, L.L.C., d.b.a. ServiceMaster
(“ServiceMaster”) appeals the trial court’s judgment in favor of plaintiff-appellee, Frank
Novak & Sons, Inc. (“Novak”) on Novak’s breach of contract claim and ServiceMaster’s
counterclaims for breach of contract and unjust enrichment. Novak also cross-appeals,
challenging the trial court’s judgment with respect to its claim under R.C. 4113.61 (“Ohio’s
Prompt Payment Act”). We affirm the trial court’s award in favor of Novak on its breach
of contract claim, reverse the trial court on its application of the Prompt Payment Act, and
remand for further proceedings.
Procedural History and Facts
{¶2} This case involves a dispute between a general contractor and subcontractor
related to work performed in the summer of 2007 to restore the Cleveland Browns Stadium
(the “Property”) in time for the Browns’ first pre-season game. On July 14, 2007, during a
concert, the Property sustained severe water damage because of faulty plumbing. The
next day, ServiceMaster was hired as the general contractor to perform cleaning,
restoration, and construction for the Property. ServiceMaster, in turn, hired Novak as a
subcontractor to perform painting, flooring, and wall covering work. While the parties
were performing work related to the July 14th incident, a severe rainstorm occurred on
August 2, 2007, causing further damage to the Property, and resulting in Novak performing
additional work. {¶3} Novak brought the underlying action seeking to recover money allegedly
owed by ServiceMaster in connection with work Novak performed for the August 2, 2007
project. Novak further sought to separately recover prejudgment interest and attorney fees
under R.C. 4113.61, Ohio’s Prompt Payment Act, for ServiceMaster’s alleged failure to
timely pay after having received payment itself.
{¶4} The parties disputed the nature of the contract that governed, and both parties
ultimately changed their respective positions during the course of the litigation. While
Novak initially asserted that the parties entered into a “subcontractor agreement” and
attached a written subcontractor agreement to the complaint, Novak changed its position
and filed an amended complaint, asserting that the parties “entered into an oral agreement.”
Conversely, ServiceMaster initially answered the complaint and responded to requests for
admissions, denying that the subcontractor agreement was the contract between the parties.
It then, however, amended its answer to state that the parties entered into a written
subcontractor agreement — the same subcontractor agreement attached to Novak’s original
complaint (“subcontractor agreement”).
{¶5} After Novak filed its second amended complaint, ServiceMaster answered
and asserted two counterclaims for breach of contract and unjust enrichment.
ServiceMaster alleges that all the work performed by Novak was governed by the single
written subcontractor agreement, signed by ServiceMaster’s president, Ed Ranieri.
ServiceMaster alleged that the severe rain of August 2, 2007, resulted in an expanded scope
of work but that the parties agreed that Novak would continue to provide flooring and painting services “under the terms of their agreement.” ServiceMaster further alleged that
Novak “breached this agreement as it has been paid substantially more than what is
provided in their agreement.” ServiceMaster’s claim is based on two specific provisions
in the subcontractor agreement — (1) “an administrative fee provision” providing that all
payments are subject to a 20 percent administrative fee, and (2) “a pay when paid
provision” providing that Novak will be paid when ServiceMaster has received payment
from the property owner, the property owner’s agent and/or the relevant insurance
company.
{¶6} In support of its unjust enrichment claim, ServiceMaster alleged that it made
payments to Novak totaling $430,000 and that Novak negotiated an additional payment of
$100,450 directly from the Cleveland Browns, of which it never informed ServiceMaster.
Based on these collective payments, ServiceMaster alleged that Novak has been overpaid
for its work on the Property and that “it would be unjust for [Novak] to retain this benefit.”
{¶7} The case ultimately proceeded to a bench trial.
{¶8} Novak presented documentary evidence establishing that ServiceMaster
entered into separate contracts with the property owner’s agent to perform restoration work
on the Property in response to the pipe–sewer backup of July 14th (“Loss 1”) and the
rainwater intrusion on August 2nd (“Loss 2”).
{¶9} Bradley Pinchot, vice president of Novak, testified that his company was
hired by ServiceMaster to perform services related to both Loss 1 and Loss 2, but that Loss
1 and Loss 2 were two separate projects. Pinchot expressly denied that Loss 2 was an extension of the scope of work under Loss 1. According to Pinchot, ServiceMaster
specifically required Novak to distinguish from the work it performed with respect to Loss
1 and Loss 2 because they were two separate projects.
{¶10} With respect to Loss 2, Pinchot testified that Novak had an oral contract with
ServiceMaster to perform the work. Specifically, Pinchot testified that he entered into an
oral contract with Pete D’Agostino, a project executive from ServiceMaster, for Novak to
perform the work on Loss 2 and that ServiceMaster would pay on a “time and material
basis.”
{¶11} Pinchot further testified that he had received the subcontractor agreement
“two or three weeks after” Novak commenced work at the stadium. Pinchot stated that he
never signed or approved the terms. With respect to the administrative fee provision in
the subcontractor agreement, Pinchot testified that the 20 percent administrative fee “is
actually more than what is in [Novak’s] billing rate for allowable overhead and profit,” and
therefore Novak never agreed to the agreement. Pinchot explained that Novak would
have lost money from day one if it agreed to the subcontractor agreement so “we didn’t
execute it for that reason.” Pinchot further explained that Novak pulled its people from
other jobs to work on Loss 1 and that it never would have pulled labor off other paying jobs
to work on another job that Novak would lose money from the inception.
{¶12} Novak submitted invoices totaling $535,000 for flooring work performed on
Loss 1. It is undisputed that Novak received $430,000 in payment from ServiceMaster.
According to Pinchot’s testimony, these payments were applied to Loss 1 invoices, which were their oldest outstanding invoices. Pinchot testified that ServiceMaster never applied
a 20 percent administrative fee to the invoices submitted by Novak. With respect to the
outstanding balance on Loss 1 and other unpaid invoices that Novak had from other
contractors that it performed work for related to the faulty plumbing, Novak placed a
mechanic’s lien on the Property, prompting the Browns to directly negotiate a settlement
with Novak on its Loss 1 claims ($100,450) in return for its release of the lien. The
settlement agreement was executed on June 13, 2008, and releases any claims with respect
to Loss 1 against ServiceMaster and the other contractors. The settlement agreement,
however, expressly excludes any claim that Novak may have regarding Loss 2 and
preserves its right to pursue such a claim.
{¶13} As for the Loss 2 work, Pinchot testified that Novak initially submitted an
invoice, dated August 21, 2007, for its services in the amount of $39,643.15, which
included an estimate of future work to finish the project that ServiceMaster requested
Novak to include. According to Pinchot, Novak subsequently submitted a revised invoice,
which reflected the actual labor and materials used, resulting in a reduced invoice of
$37,158.82. Pinchot testified that, although the insurance company approved this invoice
for payment in the amount of $31,000, Novak never received any payment from
ServiceMaster on this invoice.
{¶14} Novak further presented the testimony of Erica Burmeister, who previously
worked in the administrative department of ServiceMaster and was assigned as the project
auditor for the Cleveland Browns job. According to an internal document prepared by Burmeister, the $430,000 in payments made by ServiceMaster were for Loss 1 payments,
and no payments were made toward Loss 2.
{¶15} Novak called ServiceMaster’s president, Ed Ranieri, as a witness, who
admitted on direct examination that all of the work performed by Novak on Loss 1 and
Loss 2 was “excellent.” Ranieri further testified that Pete D’Agostino hired Novak with
respect to Loss 2. Although Ranieri initially stated that Novak entered into an “oral”
contract with ServiceMaster, he immediately recanted, indicating that the relationship was
always governed by the written subcontractor agreement.
{¶16} Ranieri acknowledged that he never objected to any of the invoices submitted
by Novak. Ranieri further corroborated Pinchot’s testimony that the insurance company
approved $31,617.28 on Novak’s final Loss 2 invoice. Ranieri further confirmed that
ServiceMaster received two separate $100,000 checks on January 9, 2008, with respect to
Loss 2 invoices.
{¶17} On cross-examination, Ranieri testified that ServiceMaster hired “probably
20, 25” subcontractors on the Cleveland Browns Stadium job and that it required executed
written subcontractor agreements from all of its subcontractors given that it involved a
“multimillion dollar gig.” According to Ranieri, there was no oral contract with Novak.
Ranieri testified further that the additional work caused by the August 2, 2007 rainstorm
fell within the scope of the original written subcontractor agreement. Ranieri stated that
Novak never indicated that it considered the additional work to be a “separate job” nor did
it ever discuss separate contractual terms for Loss 2. {¶18} Ranieri further testified that ServiceMaster, as the general contractor, received
invoices from the subcontractors that it forwarded to the insurance adjustor, the city of
Cleveland, and the Cleveland Browns. According to Ranieri, ServiceMaster’s invoices
were not paid in full — “not even close.” Ranieri stated that ServiceMaster “took a 1.2
million hit” on this job. Ranieri also testified that, when it received payment from the
owner or the owner’s agent, the payment was never accompanied with instructions as to
which subcontractor’s invoices should be paid. According to Ranieri, ServiceMaster paid
Novak $430,000 on its invoices despite only $409,000 being approved. Applying the
administrative fee in the written agreement and the allowed adjusted amount, Ranieri
testified that Novak was only entitled to $327,578.50 with respect to all the work
performed.
{¶19} The trial court also heard testimony from Gregory Zeigler, an account
manager at Affiliated FM Global, who was the adjustor handling the claims submitted in
response to Loss 1 and Loss 2. According to Zeigler, Affiliated FM Global received a
total of $297,346 in invoices regarding work performed for Loss 2. Of the invoices
submitted, $31,617.28 was specifically approved and earmarked for Novak’s work on Loss
2.
{¶20} In support of its case, ServiceMaster offered the testimony of Gary Cerasi,
ServiceMaster’s accountant for approximately the last ten years. According to Cerasi, a
20 percent administrative fee provision is very common in the construction industry.
Cerasi testified as to his familiarity with the invoices submitted by Novak to ServiceMaster regarding the Property. Cerasi assisted ServiceMaster “to help job cost the job” and
oversaw the invoices to “make sure the overall accounting of the job was being taken care
of.” According to Cerasi, he never knew “about Loss 1 or Loss 2 until we saw the
Affiliated things way down the road.” Cerasi further testified that, even if the insurance
company for the owner asked the subcontractor to classify the job as “Loss 1 [and] Loss 2,”
there is no accounting reason for ServiceMaster to consider the job that way. Cerasi
further testified that ServiceMaster never received any instructions as to how to apply
payments upon receipt from either the Cleveland Browns, Affiliated FM Global, or the city
of Cleveland.
{¶21} According to Cerasi, after applying the adjustments made to the invoices
submitted, Novak should have been paid no more than $409,473. Cerasi further testified
that the administrative fee should have applied to that amount resulting in Novak receiving
a reduced payment of $327,598.
{¶22} On cross-examination, Cerasi acknowledged that he did not have any personal
knowledge as to the parties entering into the written agreement. Cerasi further
acknowledged that he had no personal knowledge of Novak ever agreeing to the
adjustments made to Novak’s invoices.
{¶23} Following the bench trial, the trial court issued its findings of facts and
conclusions of law, awarding judgment in favor of Novak on its breach of contract claim in
the amount of $37,158.82 and on ServiceMaster’s counterclaims. The court found, however, that ServiceMaster was not in violation of the Ohio Prompt Payment Act and
awarded judgment in favor of ServiceMaster on this claim.
{¶24} ServiceMaster appeals from this judgment, raising three assignments of error:
I. The trial court erred in finding that the relationship between the parties was governed by an oral contract and not the written subcontractor agreement.
II. The trial court erred in concluding that plaintiff met its burden of establishing an oral contract.
III. Even if an oral contract was formed, the trial court erred by failing to determine the reasonable value of the services dating back to July 15, 2007.
{¶25} Novak has filed a cross-appeal, asserting the following single
cross-assignment of error:
I. The trial court erred in denying Novak’s claim for relief against ServiceMaster pursuant to R.C. 4113.61 (Ohio’s Prompt Payment Act).
{¶26} We turn first to ServiceMaster’s stated assignments of error.
Standard of Review
{¶27} In a civil case, “[j]udgments supported by some competent, credible evidence
going to all the essential elements of the case will not be reversed by a reviewing court as
being against the manifest weight of the evidence.” C.E. Morris Co. v. Foley Constr. Co.,
54 Ohio St.2d 279, 376 N.E.2d 578 (1978), syllabus.
A reviewing court should not reverse a decision simply because it holds a different opinion concerning the credibility of the witnesses and evidence submitted before the trial court. A finding of an error in law is a legitimate ground for reversal, but a difference of opinion on credibility of witnesses and evidence is not. Seasons Coal Co., Inc. v. Cleveland, 10 Ohio St.3d 77, 81, 461 N.E.2d 1273 (1984). Type of Contract
{¶28} In its first assignment of error, ServiceMaster argues that the trial court erred
in concluding that the parties’ relationship was governed by an oral contract and not the
standard subcontractor agreement that ServiceMaster offered into evidence (hereby “the
written agreement”). ServiceMaster’s argument hinges on the following alleged facts: (1)
Novak was presented with the written agreement drafted and signed by Edward Ranieri,
president of ServiceMaster, at the inception of the project, namely, on or about July 15,
2007; (2) Novak received the contract and understood its terms; and (3) Novak began
performing the work contemplated in the written contract. Although Novak never signed
the contract, ServiceMaster contends that Novak’s performance under the contract
constitutes an acceptance of the written contract, thereby binding Novak under the contract.
{¶29} In support of this argument, ServiceMaster cites to several cases that hold a
written contract that is not executed is enforceable if the parties proceed to act as if the
contract is in effect. Specifically, ServiceMaster relies on this court’s decision in Jatsek
Constr. Co. v. Burton Scot Contrs., L.L.C., 8th Dist. Cuyahoga No. 98142,
2012-Ohio-3966, and contends that it is controlling.
{¶30} In Jatsek, the subcontractor filed suit seeking payment for services it provided
on a construction project. The general contractor, Burton Scot, faxed an agreement to
Jatsek prior to the start of the project. Jatsek made some changes, signed it, and then
returned a modified version of the agreement. Burton Scot, however, never signed the
agreement. In response to Jatsek’s complaint, Burton Scot moved to stay the proceedings and compel arbitration based on an arbitration agreement contained in the agreement signed
by Jatsek. The trial court ruled that no contract existed for the project and consequently
denied the motion to stay. This court, however, reversed the trial court, finding an actual
implied contract was formed between the parties upon the start of the work by Jatsek.
Specifically, relying on G. Herschman Architects, Inc. v. Ringco Mfg. Co., Inc., 8th Dist.
Cuyahoga No. 67758, 1995 Ohio App. LEXIS 1940 (May 11, 1995), the court held that
Jatsek’s subsequent performance constituted an acquiescence to the written agreement
containing the arbitration clause.
{¶31} We find Jatsek distinguishable. None of the parties in Jatsek asserted that an
express oral contract governed their dispute. Nor was the trial court weighing evidence to
resolve disputed facts. In this case, Brad Pinchot, Novak’s vice president, testified that
an express oral contract governed the parties’ relationship. Specifically, he denied that
there was a written contract. According to Pinchot, the parties had a “time and material
agreement” — a method of contracting common in the construction industry.
{¶32} The evidence reveals that the written agreement was presented to Novak after
Novak had already commenced work on the project. Specifically, Pinchot testified that he
received the written agreement by fax two to three weeks after Novak had commenced
work on the project. In Jatsek, the court’s holding was based on the reasoning of G.
Herschman and the principle that a party’s commencement of the work may be sufficient
evidence that the party has accepted the terms of the agreement — the critical point being that the party was presented with the agreement prior to commencement of the work. This
reasoning, therefore, does not apply in this case.
{¶33} Further, Novak presented evidence at trial that ServiceMaster denied the
existence of a written contract between the parties in its response to Novak’s request for
admissions. And while both parties changed their respective positions during the
litigation, the trial court was free to find one party more credible than the other.
Moreover, ServiceMaster never applied a 20 percent administrative fee to Novak’s invoices
submitted with respect to Loss 1 — a key provision under the written agreement giving rise
to ServiceMaster’s overpayment claim. The first time that ServiceMaster even alleged
that it overpaid Novak was nearly a year after Novak filed its lawsuit and more than two
years after it made its last payment to Novak. Thus, ServiceMaster’s specific conduct
belies its claim that the written agreement governed.
{¶34} Accordingly, we find that the trial court was free to find that the parties
entered an oral contract with respect to Loss 2 and that the written agreement signed by
ServiceMaster’s president did not govern either Loss 1 or Loss 2. Indeed, given
ServiceMaster’s inconsistent actions with the terms of the written agreement, we find that
the trial court’s finding that the written agreement does not govern is consistent with the
weight of the evidence.
{¶35} The first assignment of error is overruled.
Proof of Oral Contract {¶36} In its second assignment of error, ServiceMaster argues that the trial court
erred in concluding that Novak had met its burden of establishing an oral contract with
respect to Loss 2.
{¶37} “To succeed on a breach of contract claim, a party must prove the existence of
a contract, that party’s performance under the contract, the opposing party’s breach, and
resulting damage.” Ruple v. Midwest Equip. Co., 8th Dist. Cuyahoga No. 95726,
2011-Ohio-2923, ¶ 18. To prove the existence of a contract, a plaintiff must show that
both parties consented to the terms of the contract, that there was a “meeting of the minds”
of both parties, and that the terms of the contract are definite and certain. Id., citing
Nilavar v. Osborn, 137 Ohio App.3d 469, 738 N.E.2d 1271 (2d Dist.2000); McSweeney v.
Jackson, 117 Ohio App.3d 623, 631, 691 N.E.2d 303 (4th Dist.1996).
1. Evidence of Offer and Acceptance
{¶38} ServiceMaster contends that Novak failed to present evidence of an offer and
acceptance of an oral contract, and therefore there was never a meeting of the minds
between the parties. We disagree.
{¶39} Pinchot testified that he entered into an oral contract with Pete D’Agostino,
who had the authority to contract on ServiceMaster’s behalf. Pinchot further testified that
D’Agostino agreed to compensate Novak on a “time and material basis” and reimburse
Novak for its expenses in exchange for Novak performing the required work. The record
further reveals that Novak completed the work and then submitted its final invoice,
detailing its time and material on the job. ServiceMaster never expressed any objection to the invoice and indicated that payment would be forthcoming upon its receipt of payment
from the Cleveland Browns and the city of Cleveland. We find Pinchot’s testimony,
coupled with the actions of the parties, provides competent, credible evidence to support
the trial court’s finding that the parties entered into an oral contract with respect to Loss 2.
2. Definite Terms
{¶40} ServiceMaster also contends that the alleged oral contract was lacking any
definite terms to be enforceable. We disagree.
{¶41} The record contains sufficient evidence of definite terms to enforce the oral
contract. The record reveals that Novak is a union shop with published union rates.
Pinchot explained at trial that price terms in a time and material contract are calculated by
adding hours worked at the published union rate to the cost of materials plus 10 percent.
According to Pinchot, this method of pricing is understood in the construction industry,
“including people from ServiceMaster.” Pinchot further testified that Novak has done
work for ServiceMaster in the past and that ServiceMaster understood Novak’s rates.
Based on this competent, credible evidence, we find that Novak met its burden to establish
an oral contract with respect to Loss 2.
3. Trial Court’s Stated Reasoning
{¶42} ServiceMaster also argues that the trial court’s reasoning supporting the basis
for an oral contract is inconsistent and chronologically impossible. Pointing to the trial
court’s finding that Pinchot’s testimony was the only probative evidence of contract
formation, ServiceMaster argues that the trial court relied on Pinchot’s testimony to conclude that ServiceMaster orally contracted with Novak to perform work in response to
the August 2, 2007 damage. The trial court later concludes that the “parties’ relationship
with regards to the entire Cleveland Browns Stadium restoration project (Loss 1 and Loss
2) was governed by an oral contract.” ServiceMaster argues that it is chronologically
impossible that a single contract formed in response to the damage of August 2, 2007 (Loss
2) could also govern the formation of a contract for the earlier July 14, 2007 event (Loss 1).
{¶43} We find ServiceMaster’s argument misplaced and no basis for reversal. The
trial court’s finding regarding contract formation specifically related to the oral contract
governing Loss 2. Indeed, Novak’s case was based solely on recovering for Loss 2, and
therefore focused its presentation of the evidence on the contract formation for Loss 2.
With respect to Loss 1, the trial court found that ServiceMaster failed to meet its burden
that a breach of contract occurred under a written agreement. Based on our discussion
above, the record supports the trial court’s finding in favor of Novak on ServiceMaster’s
counterclaim. Thus, while the trial court also found that an oral contact governed Loss 1,
the critical point is that it did not find that the written agreement governed Loss 1, thereby
supporting its judgment in favor of Novak on ServiceMaster’s counterclaim.
{¶44} The second assignment of error is overruled.
Value of Novak’s Services
{¶45} In its third assignment of error, ServiceMaster argues that the trial court erred
in failing to determine the reasonable value of Novak’s services. According to ServiceMaster, even assuming the written agreement did not govern and that an oral
contract was formed, the trial court was required to determine the reasonable value of
Novak’s services for both Loss 1 and Loss 2.
{¶46} In support of this argument, ServiceMaster relies on the testimony of Gregory
Zeigler, who was the insurance adjustor for Affiliated FM Global handling the two
insurance claims submitted with respect to Loss 1 and Loss 2. Zeigler testified as to the
amount of money approved with respect to Loss 1 and Loss 2, indicating that the insurance
company made downward adjustments to the rates submitted by Novak for several reasons.
He explained that the adjustments “could be because they aren’t covered under the policy;
it might not be loss related, or we might not based on disagreement over the rates or hours
they were on site.” Specifically, ServiceMaster contends that the amount approved by
Affiliated FM Global, namely, $377,855.85 on Loss 1 and $31,617.28 on Loss 2, is the
only evidence of the reasonable value of the Novak’s services and the amount that Novak
should have been paid. ServiceMaster further points to the testimony of its own
accountant, Gary Cerasi, who indicated that Novak should have only been paid the amount
approved by Affiliated FM Global.
{¶47} This argument, however, ignores that the trial court awarded Novak the
amount submitted on Novak’s Loss 2 final invoice, which contained line item charges for
the time and materials that Novak furnished in response to Loss 2, totaling $37,158.82.
Novak proved by a preponderance of the evidence that, under the terms of the oral contract
for Loss 2, ServiceMaster agreed to pay Novak on a time and material basis. Notably, ServiceMaster never objected to the charges contained in Novak’s final Loss 2 invoice
prior to the lawsuit. Instead, ServiceMaster excused its nonpayment on the basis that it
had not been paid in full by the property owner.
{¶48} There is no evidence that Novak agreed to perform the work in exchange for
the amount approved by the insurance company. Moreover, Affiliated FM Global’s
property damage summary, detailing downward adjustments to Novak’s invoices, does not
reflect a determination of the “reasonable value” of Novak’s work. Instead, the summary
simply addresses those portions of Novak’s work covered under the policy of insurance.
As stated by Zeigler, “we really don’t review the work. We review the insurance contracts
and decide what’s recoverable.” This testimony directly contradicts ServiceMaster’s
accountant’s testimony that the reasonable value of services is based on the amount
approved by the insurance company.
{¶49} Accordingly, we find that the trial court properly awarded Novak $37,158.82
on its breach of contract claim for Loss 2.
{¶50} Additionally, we find no merit to ServiceMaster’s claim that the trial court
failed to consider the reasonable value of Novak’s services with respect to Loss 1 in
resolving the counterclaim. ServiceMaster’s counterclaim for breach of contract hinged
on its assertion that the written agreement governed both Loss 1 and Loss 2 and, therefore,
based on the “pay when paid” provision and the 20 percent administrative fee provision, it
had overpaid Novak. Given that the trial court found that the written agreement did not
govern Loss 1 and Loss 2, either individually or collectively, the trial court properly concluded that there was no merit to ServiceMaster’s overpayment claim and resolved the
counterclaim in Novak’s favor.
{¶51} We further find that ServiceMaster failed to meet its burden of proof that the
amount it paid to Novak exceeded the reasonable value of the services provided. Again,
the thrust of ServiceMaster’s argument is based on the amount approved by Affiliated FM
Global for the claim submitted with respect to Loss 1. As discussed above, this testimony
is not persuasive proof of the reasonable value of Novak’s services. Moreover, we find no
basis to attribute the Cleveland Browns’ payment toward Novak’s Loss 1 invoices as
grounds to support an unjust enrichment claim on ServiceMaster’s behalf.
{¶52} The third assignment of error is overruled.
Prompt Payment Statute
{¶53} Novak argues in its sole cross-assignment of error that the trial court’s refusal
to award it damages under R.C. 4113.61 is against the manifest weight of the evidence and
contrary to law.
{¶54} The statute provides in relevant part:
(A)(1) If a subcontractor * * * submits * * * an invoice for materials to a contractor in sufficient time to allow the contractor to include the * * * invoice in the contractor’s own pay request submitted to an owner, the contractor, within ten calendar days after receipt of payment from the owner for improvements to property, shall pay to the:
(a) Subcontractor, an amount that is equal to the percentage of completion of the subcontractor’s contract allowed by the owner for the amount of labor or work performed; *** The contractor may reduce the amount paid by any retainage provision
contained in the contract, invoice, or purchase order between the contractor
and the subcontractor * * *, and may withhold amounts that may be necessary
to resolve disputed liens or claims involving the work or labor performed or
material furnished by the subcontractor * * *.
If the contractor fails to comply with division (A)(1) of this section, the
contractor shall pay the subcontractor * * *, in addition to the payment due,
interest in the amount of eighteen per cent per annum of the payment due,
beginning on the eleventh day following the receipt of payment from the
owner and ending on the date of full payment of the payment due plus interest
to the subcontractor * * *.
R.C. 4113.61(A)(1).
{¶55} Therefore, pursuant to R.C. 4113.61(A)(1), if a subcontractor makes a timely
request for payment, a contractor must pay the subcontractor in proportion to the work
completed within ten calendar days of receiving payment from the owner. Masiongale
Elec.-Mechanical, Inc. v. Constr. One, Inc., 102 Ohio St.3d 1, 2004-Ohio-1748, 806 N.E.2d
148, ¶ 16. A contractor, however, is permitted to withhold “amounts that may be necessary
to resolve disputed liens or claims involving the work or labor performed or material
furnished by the subcontractor.” Id., quoting R.C. 4113.61(A).
{¶56} Failure to comply with these provisions obligates a contractor to pay interest
on the overdue payment at a rate of 18 percent per annum. R.C. 4113.61(A)(1) and (B)(1). A subcontractor also may file a civil action to recover the amount due and the
statutory interest. R.C. 4113.61(B)(1). If the court determines that the contractor has not
complied with the prompt-payment statute, the court must award the subcontractor the
statutorily prescribed interest. Masiongale Elec.-Mechanical, Inc. at ¶ 17.
{¶57} Novak argues that the record overwhelmingly establishes a violation of R.C.
4113.61. Specifically, Novak relies on the following factual findings by the trial court:
· The insurance company approved total payments of the Loss 2 subcontractors’ invoices in the amount of $235,460.82. Affiliated FM specifically earmarked $31,617.28 of the $235,460.82 to pay Novak’s final invoice.
· According to their own records, ServiceMaster received $200,000.00 in the form of two $100,000.00 checks on January 9, 2008.
· The final check paid to Novak by ServiceMaster in the amount of $75,000.00 was issued on December 28, 2007.
· Defendant’s internal records establish that as of February 12, 2008,
the entire balance associated with Loss 2 was not paid by ServiceMaster.
{¶58} Based on these findings, which are supported by competent, credible evidence
in the record, we find that there is a violation of Ohio’s Prompt Payment Act. The trial
court’s verdict to the contrary is against the manifest weight of the evidence. Indeed, the
record reveals that ServiceMaster never paid Novak on the Loss 2 contract, despite having
received a partial payment of $31,617.28 that was specifically designated for Novak’s Loss
2 invoice, and despite there being no objection to the invoice or dispute over Novak’s
services. The statute prohibits and penalizes this exact conduct. {¶59} The trial court’s finding that ServiceMaster’s payment of $75,000 issued on
December 28, 2007, was a prepayment of the $31,617.28 that ServiceMaster received on
the Loss 2 claim is not supported by the evidence. At the time the $75,000 payment was
received, Novak had open invoices for Loss 1 and Loss 2. Pinchot testified that the
$75,000 payment was applied toward Loss 1 invoices — the oldest outstanding invoices.
ServiceMaster’s own internal bookkeeping records confirm that the $75,000 payment was
made toward Loss 1 invoices. For this same reason, we cannot say that Ranieri’s
testimony that ServiceMaster’s payment of $75,000 was for Loss 2 is credible; his
testimony directly contradicts ServiceMaster’s business records. Notably, even after the
$75,000 payment, an outstanding balance of $54,297.01 remained on Novak’s Loss 1
invoices — this amount, however, was settled through the agreement negotiated directly
with the Cleveland Browns.
{¶60} ServiceMaster counters that the trial court’s decision should stand based on
the evidence that the $75,000 payment was made within ten days of ServiceMaster’s receipt
of the two checks it received from the owner and owner’s agent to cover Loss 2 invoices.
The record reveals, however, that these two checks were documented as received by
ServiceMaster on January 9, 2008. ServiceMaster’s bookkeeping records also show, as
the trial court found, that as of February 12, 2008, the entire amount of Novak’s Loss 2
invoice remained unpaid.
{¶61} In finding that the statute was not violated, the trial court improperly focused
on the total payments made under Loss 1 and the insurance company’s approval of less than what ServiceMaster actually paid Novak on Loss 1. But we cannot ignore that Loss 2
constituted a separate agreement and, therefore, the trial court should have focused solely
on ServiceMaster’s conduct with respect to Loss 2.
{¶62} Because the record reveals that ServiceMaster did not make any payment to
Novak with respect to Loss 2, nor did it ever dispute the invoice prior to Novak’s
commencement of the lawsuit, we fail to see how ServiceMaster escapes application of
Ohio’s Prompt Payment Act. This is not a situation where the contractor, in good faith,
withholds amounts when there is a disputed claim. See Consortium Communications v.
Cleveland Telecommunications, Inc., 10th Dist. Franklin No. 97APG08-1090, 1998 Ohio
App. LEXIS 524 (Feb. 10, 1998). Here, Novak is entitled to prejudgment interest because
ServiceMaster did not assert a good faith basis to withhold the money. See Gary
Moderalli Excavating, Inc. v. Trimat Constr., Inc., 5th Dist. Tuscarawas Nos.
2012AP030022 and 2012AP030023, 2013-Ohio-1701, ¶ 49 (“if the contractor does not
assert a good faith basis to withhold the money, then the subcontractor is entitled to
prejudgment interest”).
{¶63} But although Novak is entitled to prejudgment interest, the award of attorney
fees is not automatic. In fact, R.C. 4113.61(B)(3) states that the court shall not award
attorney fees if the court determines, following a hearing on the payment of attorney fees,
that such an award would be inequitable. And while ServiceMaster has presented
compelling reasons as to why the application of the attorney fees would be inequitable, this determination lies within the sound discretion of the trial court. We therefore remand on
this issue for the trial court to consider.
{¶64} In summary, ServiceMaster’s three assignments of error are overruled, and the
judgment is affirmed awarding Novak damages on its breach of contract claim. Novak’s
sole cross-assignment of error is sustained, thereby entitling it to prejudgment interest as set
forth in R.C. 4113.61(A)(1), but the issue of attorney fees must be remanded for the trial
court to consider.
{¶65} Judgment affirmed in part, reversed in part, and remanded to the lower court
for further proceedings consistent with this opinion.
It is ordered that appellee recover from appellant the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the common
pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the
Rules of Appellate Procedure.
MARY J. BOYLE, ADMINISTRATIVE JUDGE
EILEEN A. GALLAGHER, J., and PATRICIA ANN BLACKMON, J., CONCUR