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The Melohn Companies, Inc. v. AmeriFirst Financial Corporation

United States District Court, N.D. Ohio, Eastern Division

April 26, 2018

The Melohn Companies, Inc., Plaintiff,
v.
AmeriFirst Financial Corporation, Defendant.

          MEMORANDUM OF OPINION AND ORDER

          PATRICIA A. GAUGHAN UNITED STATES DISTRICT COURT CHIEF JUDGE.

         INTRODUCTION

         This matter is before the Court upon Defendant AmeriFirst Financial Corporation's Motion for Summary Judgment (Doc. 20), Plaintiff The Melohn Companies, Inc.'s Motion for Partial Summary Judgment (Doc. 22), and Defendant AmeriFirst Financial Corporation's Motion for Leave to File Sur-Reply (Doc. 30). Plaintiff The Melohn Companies, Inc. (“Melohn”) brings a state law claim of tortious interference with contract against Defendant AmeriFirst Financial Corporation (“AmeriFirst”). This Court has diversity jurisdiction over this case. For the following reasons, AmeriFirst's motion for summary judgment is GRANTED, and Melohn's motion for partial summary judgment is DENIED. AmeriFirst's motion to file a sur-reply brief is GRANTED because Melohn raised new issues for the first time in its reply brief in support of its motion for partial summary judgment.

         FACTS

         On May 18, 2014, Donald M. Horner, Jr. (“Horner”) purchased residential real property located in Shaker Heights, Ohio, from Fannie Mae. The purchase agreement noted that Horner intended to secure a Department of Housing and Urban Development (“HUD”) 203K renovation loan for the property. (Doc. 20-2, at Page ID 480). A HUD 203K loan, which is guaranteed by the Federal Housing Administration (“FHA”), allows a buyer to finance both the acquisition of a residential property and home improvements. Horner applied for a 203K loan from AmeriFirst, which is an approved FHA lender, and was awarded the loan.

         The PowerSaver Grant

         On July 10, 2014, Melohn submitted a Bid on Repairs to perform the repairs on Horner's house. After Melohn submitted the original bid, Horner decided to apply for a HUD PowerSaver grant, which permits an award for borrowers who commit to making eligible energy efficiency upgrades to the residence. (Steven Harvey Aff. ¶¶ 7-8). On July 16, 2014, Horner emailed HUD's property inspection consultant Steven Harvey and Melohn to inform them that he intended to seek the grant. The same day, Taella Berman of AmeriFirst also emailed Melohn to explain that Horner was seeking a PowerSaver grant. She asked Melohn to “update [its] estimate by adding a materials list showing ...the make, model, [and] serial number of” of the products that it intended to install so that she could verify that they were Energy Star compliant. Attached to her email was the eligibility checklist for the grant, showing that heating systems and water heaters had to be Energy Star compliant to qualify for the grant. (Doc. 28-2, at Page ID 1529- 1535).

         On July 18, 2014, Harvey prepared a revised Bid on Repairs to account for the fact that Horner was seeking a PowerSaver grant from HUD. He emailed Melohn a copy of the revised Bid on Repairs, which acknowledged that the project was subject to a HUD 203K loan and provided that Melohn would furnish and install a new Energy Star-compliant hot water heater and replace the existing HVAC system with a new Energy Star-compliant system. (Harvey Aff. ¶¶ 10-12).[1] The Bid on Repairs identified the specific make and model of the equipment that was to be installed. (Doc. 28-2, at Page ID 1547, 1549). Melohn's president, John Mayher (“Mayher”), initialed and signed the revised bid on July 18, 2014. (Id.); (Harvey Aff. ¶ 14). Melohn apparently never received a copy of the revised bid with Horner's signature. Horner was approved for the PowerSaver grant in the amount of $3, 401.73 on July 23, 2014. Horner closed on his purchase of the property on July 29, 2014.

         The Parties' Dispute

         In response to a draw request that Melohn submitted in the fall of 2014, Harvey wrote a letter to Melohn identifying a number of deficiencies in its work on both the exterior and interior of the house and its failure to comply with the Bid on Repairs. Of particular relevance here, he noted that Melohn needed to provide proof that the hot water tank and HVAC unit were Energy Star compliant. (Doc. 20-11, at PageID 589). Thereafter, Melohn filed an affidavit and amended affidavit of mechanics' lien, claiming to be owed $59, 213.76 on the project. (Doc. 20-9, at PageID 1127).

         AmeriFirst became involved in the dispute on January 5, 2015, when Horner complained to AmeriFirst that final inspections of Melohn's work had not taken place. Rebecca Cepluch, AmeriFirst's Renovations Operations Specialist who was assigned to the Horner loan, wrote to Melohn the same day, explaining that AmeriFirst could not authorize payment until it had removed the mechanic's lien for the money that it had already been paid. In addition, she pointed out that the contractors it had used for the HVAC and plumbing were unaware of the type of equipment that was to be installed. (Doc. 20-15, at PageID 600).

         Melohn then initiated an arbitration proceeding against Horner. As a result of settlement negotiations during the proceeding, Melohn and Horner entered into a Settlement Agreement and Release on February 22, 2015 (“Settlement Agreement”). The Settlement Agreement acknowledged that Melohn's work was “subject to the specifications, inspection requirements, and scope of repairs as detailed as part of Horner's ...HUD 203(K) loan between Horner and AmeriFirst.” It required the parties to jointly engage Fred Freer of Four Square Restorations, Inc. to inspect and determine the scope of work properly performed by Melohn. Freer was to have the sole discretion to determine the percentage of work that Melohn had completed based on the evidence that the parties submitted to him and his inspection. The Settlement Agreement provided that Horner would submit a brief and exhibits to Freer by March 4, 2015, and that Melohn would submit its brief and materials by March 15, 2015. After reviewing the parties' submission, Freer was to do a site inspection and then issue his report. The parties agreed that his report would be “final and binding on both parties as to percent complete on the Project and the resulting payment, if any, owed to Melohn or Horner.” Based on his report, Freer was to draft a final draw request “in substantially the same form required by Horner's HUD 203(K) loan.” AmeriFirst was to be “afforded a reasonable time to review the Final Report and issue payment from the Project Escrow.” The Agreement provided that “[s]hould AmeriFirst refuse or otherwise reject some or all of the payment requested in the Final Report, Horner shall pay to Melohn by check the difference between the amount approved by AmeriFirst and the amount detailed in the Final Report.” (Doc. 20-16, at PageID 604-607). Finally, the parties agreed that “any claims or causes of action related to” the Settlement Agreement were to be brought in the Cuyahoga County Court of Common Pleas.

         On April 20, 2015, Freer sent an email entitled “Final Report” to Rebecca Cepluch of AmeriFirst, Horner, Mayher, and Melohn's legal representative. In the report, Freer determined that there were outstanding issues with both the plumbing and heating. However, the report states that the Specification of Repairs on which he based his analysis did not identify a specific make or model of water heater and HVAC system that were to be installed, and he did not address whether the equipment that Melohn had installed was Energy Star compliant. He deemed the plumbing work to be 65% complete and the heating work to be 45% complete. In total, he found that Melohn was owed $25, 607.46 for his work on the project.

         Shortly after receiving the report, Cepluch responded: “This is unacceptable. We have mentioned multiple times and it was in some of the correspondence-and I can provide this accordingly. Please see attached and amend/correct appropriately.” (Doc. 20-18, at Page ID 619). She attached a copy of a Work Write-Up dated December 4, 2014, which was several weeks after Melohn had stopped work on the project. Despite the date, the Work Write-Up was consistent with the July 18, 2014 Contractor's Bid on Repairs that required installation of an Energy Star-compliant hot water tank and heating system. (Lewers Aff. ¶ 12). Shortly thereafter, Cepluch sent another email to Freer:

Thank you. I was not totally clear but my reason for sending along the original signed final WWU and the original signed final bid was to point out-water heater and furnace were not installed to specifications and cannot be paid out accordingly. In addition, there should be an allowance for removal of the installed systems and this will certainly be a charge incurred to replace with the correct equipment. Last, the photographs attached show the equipment currently installed as inspected previously by Steve Harvey.[2]

(Id.). Freer then sent an email to Mahyer asking him “[o]n or about what date did your firm install the furnace and air conditioning condensing units and what was your instruction to do so?” (Id. at PageID 615). Mahyer did not respond.

         Later in the afternoon, Freer sent a revised report. The report states that he made revisions “to reflect information received following my issuance of the initial report. Specifically, I was provided with a copy of the HUD 203K work write-up dated 12/04/2015 that contains specific notations in sections #27 (Plumbing) and #29 (Heating) that materially affect these two work categories.” In the plumbing section of the revised report, Freer noted that the “SOR required a specific water heater. The water heater installed does not comport with the specification and is not Energy Star qualified.” He determined that the plumbing work was only 35% complete. In the heating portion of his report, Freer determined that Melohn had installed a heater that did not comply with the requirements of the SOR and determined that the heating work was only 15% complete. (Doc. 20-19, at PageID 628-630). Taking into account the revisions to his original report, Freer determined that Melohn was owed $13, 234.26 for his work on the project.

         On July 14, 2015, Freer sued Melohn in the Shaker Heights Municipal Court, seeking payment for his work performed in conjunction with the Settlement Agreement. On September 29, 2015, the court issued its opinion in favor of Melohn. It found that Freer had materially breached his agreement with Melohn and Horner by amending his report in light of the documents that AmeriFirst sent. The court reasoned that these documents were sent outside the parameters of the Settlement Agreement, which called for only Horner and Melohn to submit materials to Freer by a certain date. The court also concluded that Freer breached the agreement by failing to submit a final draw request to AmeriFirst.

         Meanwhile, Melohn reinitiated arbitration proceedings against Horner. In the arbitration, Melohn claimed that it should be compensated for its work performed on the project, including recovery of overhead and lost profit on the remainder of the project. Horner filed a counterclaim, alleging that Melohn's work was defective and incomplete and that the cost of correcting Melohn's work exceeded the fair value of the work. On March 4, 2016, the arbitrator issued his Final Arbitration Award, concluding that Melohn had performed work on the project and was entitled to some recovery but that it had breached its agreement with Horner in a number of ways, including by failing to perform work in a workmanlike manner or in accordance with the requirements of the parties' agreement. As relevant here, the Arbitrator found that the plumbing and HVAC system were not performed in a workmanlike manner and did not comply with the requirements of the agreement because non-Energy Star systems were installed. (Doc. 20-25, at 8-9). In determining the amount that Horner owed Melohn, the arbitrator calculated the percentage completion of each category of work and then deducted the loss of the Energy Star Credit. Ultimately, he concluded that Horner owed Melohn $25, 598.07. Melohn did not seek to modify or vacate the arbitrator's award.

         Two weeks later, on March 18, 2016, Melohn filed suit in the Cuyahoga County Court of Common Pleas against AmeriFirst, alleging that Cepluch tortiously interfered with the Settlement Agreement by requesting that Freer revise his report. Before a ruling on AmeriFirst's motion for summary judgment, Melohn voluntarily dismissed the action.

         On May 23, 2017, Melohn again filed suit against AmeriFirst in the Cuyahoga County Court of Common Pleas, alleging that AmeriFirst, through Cepluch, tortiously interfered with the Settlement Agreement as well as the March 2, 2015 Letter of Engagement between Freer, Horner, and Melohn. Melohn also brought a separate claim for punitive damages. AmeriFirst timely removed the case to this Court. AmeriFirst now moves for summary judgment on both of ...


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