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Case 1:13-cv-22536-JIC Document 1 Entered on FLSD Docket 07/16/2013 Page 1 of 16

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA MIAMI-DADE DIVISION UNITED STATES for the use of BAC FUNDING CONSORTIUM, INC., a Florida Non Profit Corporation, ) ) ) ) Plaintiff, ) Case No. ) v. ) ) WESTCHESTER FIRE INSURANCE COMPANY, ) a Pennsylvania Corporation; ACE AMERICAN ) INSURANCE COMPANY, a Pennsylvania ) Corporation; LENO DREDGING & HAULING, INC., ) a Florida Corporation; JAMES A. LENO, an ) individual; CALVIN LENO, an individual; LINELL ) LENO, an individual; and CAROLYN LENO, an ) individual. ) ) Defendants. ) ___________________________________________/ COMPLAINT Plaintiff BAC Funding Consortium, Inc. (BAC), a Florida non-profit corporation, through undersigned counsel, alleges as its Complaint against Defendants Westchester Fire Insurance Company; ACE American Insurance Company; Leno Dredging & Hauling, Inc.; James A. Leno; Calvin Leno; Linell Leno; and Carolyn Leno and says: Parties, Jurisdiction and Venue 1. This is an action for claims arising under the Miller Act and for damages

arising from breach of a promissory note and guaranties, among other claims. 2. BAC is a not-for-profit Florida corporation with its principal place of business

in Miami-Dade County, Florida. BAC is in the business of providing operating capital to small minority businesses to allow them to undertake public projects and work for public

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owners.

Through funding and disbursement services, BAC seeks to increase the

participation of minority owned, small businesses in public sector projects. By enabling small, minority businesses to enter the public works sector, BAC also fosters a more competitive bidding environment by increasing the number of viable participants in the bidding for public works. BAC generally limits its participation to public projects to avoid the risk associated with owner defaults. BAC anticipates repayment directly from the public owner through a disbursement agreement with the contractor and public owner or through a surety or escrow agent that controls the project progress payments to assure the commitment and security of funds to repay its advances before any disbursement to the contractor. 3. Defendant Westchester Fire Insurance Company (WFIC) is a Pennsylvania

corporation authorized to do business as a surety in the State of Florida. 4. Defendant ACE American Insurance Company (Ace) is a Pennsylvania

corporation authorized to do business as a surety in the State of Florida. 5. Defendant Leno Dredging & Hauling, Inc. ("Leno) is a Florida corporation,

and upon information and belief, has its principal place of business in Miami-Dade County, Florida. 6. Defendant James A. Leno is an individual who is sui juris and, upon

information and belief, is currently residing in Miami-Dade County, Florida. 7. Defendant Calvin Leno is an individual who is sui juris and, upon information

and belief, is currently residing in Miami-Dade County, Florida. 8. Defendant Linell Leno is an individual who is sui juris and, upon information

and belief, is currently residing in Miami-Dade County, Florida. 2

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9.

Defendant Carolyn Leno is an individual who is sui juris and, upon information

and belief, is currently residing in Miami-Dade County, Florida. 10. Subject matter jurisdiction arises under 28 U.S.C. Section 1331 based on a

federal question premised on the Miller Act, 40 U.S.C. Section 3131, et seq. The Court has supplemental jurisdiction over the other counts arising under the same set of operative facts and constitute part of the same case and controversy, pursuant to 28 U.S.C. Section 1367. 11. Venue is proper in the Southern District of Florida pursuant to 40 U.S.C.

Section 3133 (b)(3)(B) (2012) as the construction contract giving rise to the Miller Act claim was performed and executed in Miami-Dade County, Florida. General Allegations A. BAC Enables Work on Project to Commence 12. Leno and United States Department of the Army Corps of Engineers

(Owner) entered into a construction contract on or about May 9, 2012 referenced as Contract #W912EP-12-C-0011- Decompartmentalization and Sheetflow Enhancement of Water Conservation Area 3" (Construction Contract) in the amount of $1,722,400. The work that is the subject of the Construction Contract (the Project) consists of installing a new water conveyance structure and related improvements to be performed in Miami-Dade County. Owner issued Leno a Notice to Proceed, instructing Leno to commence work on the Project on June 21, 2012. 13. Leno was, however, unable to fund mobilization of the Project, and thus Leno

requested BAC to undertake to serve as a disbursing agent to pay Project subcontractors

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and suppliers. 14. On July 20, 2012, BAC agreed to act as Lenos disbursement agent to enable

Leno to mobilize on the Project by providing disbursements for Project expenses up to $150,000 in accordance with the terms set forth in a July 20, 2012 memorandum, a copy of which is attached hereto as Exhibit A. BAC agreed to pay Leno's subcontractors and suppliers in consideration for Leno agreeing to repay BAC's advances from Project progress payments earned by Leno as the work progressed. To reflect the sums to be advanced to the Project subcontractors and suppliers and Lenos obligation to repay the initial advances and any subsequent advances, Leno executed and delivered to BAC a Commercial Promissory Note and Security Agreement (the Disbursement Agreement), a copy of which is attached hereto as Exhibit B. The Disbursement Agreement provided that all sums funded thereunder are due on demand. 15. The initial $150,000 amount paid by BAC to Project subcontractors and

suppliers proved insufficient to enable Leno to mobilize and perform billable work. BAC made its first disbursements to Project subcontractors and suppliers under the Disbursement Agreement during the period of July 20 through September 3, 2012, in the total amount of $204,965.58. These payments were required to enable Leno to mobilize on the Project and perform billable work for which Leno could requisition Owner. Without BACs advances, Leno would have been unable to mobilize and would have defaulted on the Project. 16. On September 7, 2012, BAC made an additional advance of $17,368.18, for

payroll and direct payments to subcontractors, bringing the total disbursements by BAC for Project work to $222,333.76. BAC made additional advances of $121,977.51 for payroll 4

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and direct payments to subcontractors during the period September 14 through October 12, 2012. These advances were required to perform billable work that would be the source of reimbursement to BAC. 17. At Lenos request, to allow the Project work to continue, BAC made additional

advances to Project subcontractors and suppliers. To preserve its right to repayment from Project requisitions, BAC was forced to fund the ongoing Project work. To date, after deducting reimbursements made to BAC, Leno owes BAC $569,295.40, which represents the principal balance of Project disbursements that BAC has made to pay Project expenses, including subcontractors, material suppliers and laborers. An accounting of sums funded by BAC, with credits for any and all reimbursements made, is reflected in the June 11, 2013 demand letter from BAC attached hereto as Exhibit C. B. Ace Commits to Secure Project Payments to Reimburse BAC 18. On July 6, 2012, before BAC entered into the Disbursement Agreement or

agreed to disburse any funds to Project subcontractors or suppliers, Otto Latimer, an Officer and Director of BAC, contacted Steven Krumm, representative of Ace, and advised of Lenos request that BAC fund Project work by paying Lenos subcontractors and suppliers. 19. Steven Krumm, as the authorized representative of Ace, advised BAC of the

existence of an agreement by and between of Leno and Ace titled the Funds Disbursing, Escrow and Payment Direction Agreement ("Payment Direction Agreement"). Ace,

through Steven Krumm, assured BAC that Ace's control of Project progress payments pursuant to the Payment Direction Agreement would protect Project progress payments and ensure that these funds would serve as a reliable and primary source of repayment for 5

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the Project funding that BAC was considering to extend to Leno. 20. Based on Aces assurances, BAC paid Project subcontractors and suppliers

so that work on the Project could commence. Without Aces assurances that Ace would be receiving progress payments from Owner and distributing such payments to reimburse BACs payments to Project subcontractors and suppliers, BAC would not have undertaken to advance funds for Project work. 21. With Aces knowledge, BAC made its first disbursements under the

Agreement during the period of July 20 through September 3, 2012. Leno required these payments, totaling $204,965.58, to mobilize on the Project. All advances that BAC made under the Disbursement Agreement to pay Project expenses were premised on Ace agreeing to adhere to directives from Leno to disburse Project progress payments first to BAC to reimburse these payments made to Project subcontractors and suppliers. 22. Without the advances to Project subcontractors and suppliers made by BAC

under the Disbursement Agreement, Leno would have defaulted on the Construction Contract immediately, thus triggering performance and payment bond claims on the bonds issued by Aces affiliated company, WFIC. 23. Aces affiliate, WFIC, had issued the payment and performance bonds on the

Project on May 10, 2012. When the notice to proceed issued in June, 2012, however, Leno lacked the operating capital to mobilize on the Project and undertake the work so as to make an application for payment. Thus, Ace recognized that without any funding source for mobilization expenses and payments to subcontractors to perform the initial Project work, Leno would default, and its affiliate, WFIC, would be called upon to undertake completion of the Project under the performance bond issued by WFIC. 6

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24.

Thus, Ace provided BAC with assurances that if BAC paid the Project

subcontractors and suppliers so that Leno could mobilize, Ace would control payments from Owner, and these Project payments would serve as a reliable and primary source of repayment for the Project funding supplied by BAC under the Disbursement Agreement. Ace confirmed that it would honor Lenos instructions to reimburse BAC, and checks would be made in the name of BAC, as sole payee. BAC was advised that all disbursements of payments received from Owner would require Ace approval and that this additional approval would serve as additional assurance that Leno could not divert Project progress payments or otherwise prevent reimbursement to BAC of the funding it was providing to allow the Project work to proceed. C. BAC Receives Proceeds of Project Progress Payments Per Aces Commitment 25. On September 7, 2012, Leno submitted its first progress payment request to

Owner for $240,500. BAC expected to receive $215,000 from the proceeds of the first progress payment request, as confirmed by Leno's submittal of a Disbursement Request directing Ace pay BAC that sum from the progress payment. When Owner reduced the first payment request to $49,105.05, BAC received $49,000 of the first progress payment. 26. To allow the Project to proceed, BAC disbursed an additional $275,439.33

through December 7, 2012, for total Project disbursements of $619,750.49. 27. On November 20, 2012, Leno submitted its second Project pay request to

Owner for $221,930.94. BAC expected to receive $129,859.45 from the proceeds of the second progress payment request, as confirmed by Leno's submittal of a Disbursement Request directing Ace to pay BAC this sum. When Owner reduced the second payment request to $129,859.45, BAC received $102,802.46, practically all of the proceeds of the 7

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second progress payment. BAC requisitioning for and being paid most of each Project payment funded by Owner confirmed BACs understanding that Ace would in fact honor Lenos Disbursement Requests to allow BAC to recoup the funds it had paid to Project subcontractors and suppliers. D. Ace Breaches Duty to Adhere to Leno Payment Directives 28. This procedure of Leno submitting disbursement instructions to Ace to pay

BAC most of Project progress payments received and Ace making these payments continued until April 10, 2013, when Leno submitted its fifth Project payment request to the owner for $381,498.30. Leno instructed Ace to pay BAC $125,000; however, Ace refused to make any payment. 29. On April 30, 2013, Leno submitted its sixth Project payment request to the

owner for $110,336.06, of which it instructed Ace to reimburse BAC $84,991.77. Again, Ace refused to make any payment. In refusing to honor Lenos disbursement instructions, Ace cited potential claims that either had been submitted to the Project surety, WFIC, or which might be submitted. Conditions Precedent and Engagement of Counsel 30. All conditions precedent to this cause of action have been performed,

released, have occurred, or otherwise have been satisfied. 31. BAC has engaged The Cunningham Law Firm, P.A. to represent it in this

matter and is obligated to pay reasonable fees for services rendered in this action. COUNT I (Miller Act Claim against Leno and WFIC under Payment Bond) 32. BAC realleges and incorporates by reference paragraphs 1 through 5 and 10 8

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through 31, as though fully alleged herein. 33. This is an action under the Miller Act, 40 U.S.C. Section 3131, et seq., for

sums due and owing under the payment bond issued by Leno and WFIC on the Project. 34. Leno and WFIC issued the payment and performance bonds on the Project,

as required by the Construction Contract and the Miller Act. The Project payment bond issued by WFIC, as surety and Leno, as principal, is attached as Exhibit D (the Payment Bond). 35. Pursuant to the Payment Bond, Leno and WFIC are obligated to pay all

claims for subcontractors, suppliers, labors and others performing work on the Project. 36. BAC paid subcontractors, suppliers and laborers for work on the Project.

Thus, BAC is equitably subrogated to these payees Miller Act bond claims against Leno and WFIC under the Payment Bond including their claim for attorney's fees pursuant to the payees' contracts with Leno. 37. BAC served notice of its Payment Bond claims to Leno by letter dated July

3, 2013, a copy of which is attached hereto as Exhibit E. 38. BAC hired the undersigned firm to represent it in this matter and agreed to

pay its counsel for such services. BAC is entitled to recover such fees and costs from WFIC pursuant to the Miller Act. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. demands judgment against Defendants Leno Dredging & Hauling, Inc., and Westchester Fire Insurance Company for damages plus attorney's fees, costs, and pre-judgment interest and such other and further relief as to the Court appears just and proper. COUNT II 9

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(Promissory Estoppel against Ace) 39. BAC realleges paragraphs 1 through 5 and 10 through 31, as though fully

alleged herein. 40. To induce BAC to fund Project subcontractors and suppliers, Ace had

committed to and represented that it would honor Lenos disbursement instructions to reimburse payments for Project work made by BAC. BAC had relied on Aces

representation in initially funding the Project work, and then exceeding its original $150,000 funding commitment. BAC changed position in reliance on Aces commitment and

representation by paying the Project subcontractors and suppliers so that the Project work could proceed. 41. Ace is estopped from refusing to reimburse BAC for the payments made to

the Project subcontractors and suppliers and all sums funded under the Disbursement Agreement, as directed by Leno in its Disbursement Requests, as BAC changed position in reliance on Aces assurances and representations. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. demands judgment against Defendant ACE American Insurance Company for damages in excess of $75,000.00, plus costs, and pre-judgment interest and such other and further relief as to the Court appears just and proper. COUNT III (Unjust Enrichment against Ace) 42. BAC realleges paragraphs 1 through 5 and 10 through 31, as though fully

alleged herein. 43. Having issued the Project payment and performance bonds on the Project 10

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on May 10, 2012, Aces affiliate, WFIC had undertaken to insure the risk associated with Lenos inability to perform the Project. When Owner issued the notice to proceed in June, 2012, Leno lacked the operating capital to undertake the work. Thus, Ace recognized that without any funding, Leno would default, and its affiliate, WFIC, would be called upon to undertake the completion of the Project under the performance bond issued by WFIC. Ace also recognized that unpaid Project subcontractors, suppliers and laborers that remained unpaid by an undercapitalized Leno would look to its affiliate for payment pursuant to the Project payment bond. 44. In inducing BAC to fund mobilization costs and pay Project subcontractors,

Ace accrued a double benefit: Ace averted a default under the Construction Contract, thus preventing a performance bond claim, and Ace reduced its affiliates exposure to payment bond claims; each Project subcontractor or supplier paid by BAC was one less claimant that its affiliate would have to pay. Ace encouraged BAC to fund Lenos performance to reduce its own affiliates exposure to bond claims. 45. BAC, however, only paid for Project work based on Aces commitment to turn

over to BAC Owners payment for such work. After inducing BAC to pay for Lenos work, Ace then withheld the Owners payments for the work that BAC had funded. 46. Ace has been unjustly enriched by having induced BAC to pay the expense

of avoiding a performance bond default and paying down the payment bond claims of its affiliate and then withholding the Project funds intended to reimburse BAC for these expenditures that reduced Aces affiliates bond exposure. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. demands judgment against Defendant ACE American Insurance Company for damages in excess of $75,000.00, plus 11

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costs, and pre-judgment interest and such other and further relief as to the Court appears just and proper.

COUNT IV (Tortious Interference against Ace) 47. BAC realleges paragraphs 2 through 5 and 10 through 31, as though fully

alleged herein. 48. Ace had knowledge of the Disbursement Agreement between BAC and Leno

that BAC had the first right to reimbursement of the funds BAC advanced to perform Project work from the payments made by Owner for Project work. 49. Ace, without justification or privilege, interfered with BAC's right to receive

payment from periodic Project payments made by Owner for Project work. Ace refused to disburse Project funds to BAC; however, such directions were without justification or privilege because neither Ace nor the Project surety paid any payment bond claims on the Project. 50. Ace, without justification or privilege, interfered with BAC's rights under the

Disbursement Agreement by refusing to make disbursements as directed by Leno in Disbursement Requests. Solely as a result of Ace's interference, BAC was unable to obtain payment of Project funds as directed by Leno. 51. As a result of Ace's tortious interference in BAC's contractual relationship with

Leno, BAC was unable to obtain payment required under the Disbursement Agreement. The damages BAC incurred by virtue of this tortious interference include, but are not limited to, the $569,295.40 BAC would have received as reimbursements for BACs payments to 12

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Project subcontractors and suppliers. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. demands judgment against Defendant ACE American Insurance Company for damages in excess of $75,000.00 plus costs, and pre-judgment interest and such other and further relief as to the Court appears just and proper. COUNT V (Breach of Disbursement Agreement against Leno) 52. BAC realleges paragraphs 1, 2, 5, 10 through 17, 30 and 31, as though fully

alleged herein. 53. BAC owns and holds the Disbursement Agreement, as well as all claims and

rights arising thereunder. 54. By letter dated June 11, 2013, a copy of which is attached as Exhibit C,

BAC made demand on Leno for repayment of the full balance funded under the Disbursement Agreement. Leno owes BAC the total sum of $569,295.40 as of June 11, 2013, as principal, plus interest and late fees as specified in the Disbursement Agreement, in addition to default interest accruing at the rate of 18% per year from that date. 55. BAC does again herein declare to be due and payable the full amount of

indebtedness outstanding under the Disbursement Agreement. 56. The Disbursement Agreement expressly provides that Leno shall be liable for

all attorneys fees and costs incurred by BAC in filing suit to recover upon Lenos default thereunder. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. respectfully requests the Court to enter judgment against Defendant Leno Dredging & Hauling, Inc. for damages in 13

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the amount of the outstanding principal, interest, and late fees owed under the Disbursement Agreement, plus attorneys fees and costs and to grant such additional relief as to the Court appears just and proper. COUNT VI (Action to Foreclose Interest in Lenos Assets and Accounts) 57. BAC realleges paragraphs 2, 5, 10 through 17, 30 and 31, as though fully

alleged herein. 58. This is an action to foreclose a security interest in accounts receivable and

other assets, over which this Court has subject matter jurisdiction. 59. Pursuant to the Disbursement Agreement, Leno granted BAC a security

interest in all of its collateral, including its assets, defined to include all tangible and intangible property such as accounts, inventory, equipment and instruments and its accounts, including all accounts chattel paper, instruments, contract rights, general intangibles and chooses in action. 60. Upon information and belief, Leno is currently in possession of collateral that

is subject to BACs security interest arising under the Disbursement Agreement. 61. BAC perfected its security interest in Lenos assets and accounts by filing a

UCC financing statement in the Official Records of Miami-Dade County, Florida at Official Records Book 27389, Page 3072 on August 17, 2010, a copy of which is attached hereto as Exhibit F, and in the records of the Florida Secretary of State in Tallahassee, Florida on August 17, 2010 at Record #201003056413, a copy of which is attached hereto as Exhibit G. 62. The Disbursement Agreement is in default, with the entire principal balance 14

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and interest accruing thereon unpaid. 63. BAC has declared and does herein again declare the full amount owing under

the Disbursement Agreement to be due and payable. Pursuant to the Security Agreement incorporated therein, BAC is entitled to foreclose upon Lenos collateral, including all assets and accounts as defined in the Disbursement Agreement. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. respectfully requests the Court to enter judgment against Defendant Leno Dredging & Hauling, Inc. foreclosing BACs security interest in all of its assets, with the proceeds to be applied to the outstanding principal, interest, late fees and attorneys fees and costs owed to BAC under the Disbursement Agreement, and to grant such additional relief as to the Court appears just and proper. COUNT VII (Action against Lenos to Enforce Guaranties) 64. herein. 65. On or about July 20, 2012, Defendants James A. Leno, Calvin Leno, Linell BAC realleges paragraphs 1, 5 through 17, 30 and 31, as though fully alleged

Leno and Carolyn Leno (collectively, the "Guarantors") endorsed and delivered to BAC absolute and unconditional guaranties to repay amounts due and owing under the Disbursement Agreement. These guaranties are incorporated in the Disbursement

Agreement attached hereto as Exhibit B. 66. Despite BACs demand for payment, the Guarantors have each defaulted on

their guaranties by failing to pay sums due to BAC under the Disbursement Agreement. 67. Pursuant to the guaranties incorporated into the Disbursement Agreement, 15

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Guarantors each, jointly and severally, owe BAC the sum of $569,295.40, plus interest, and default interest accruing after June 11, 2013. 68. Pursuant to the guaranties and other provisions of the Disbursement

Agreement, Guarantors are obligated to pay BACs attorneys fees and costs incurred in collecting the obligation due under the Disbursement Agreement. WHEREFORE, Plaintiff BAC Funding Consortium, Inc. respectfully requests the Court to enter judgment, jointly and severally, against Defendants James A. Leno, Calvin Leno, Linell Leno and Carolyn Leno for damages in the amount of the outstanding principal balance, interest, and late fees owed under the Disbursement Agreement, plus attorneys fees and costs, and to grant such additional relief as to the Court appears just and proper. JURY DEMAND BAC requests a jury trial for all matters so triable by a jury.

Dated this 15th day of July, 2013. THE CUNNINGHAM LAW FIRM, P.A. Attorneys for BAC 400 Australian Avenue South, Suite 700 West Palm Beach, FL 33401 (561) 833-6400 /s/ F. Malcolm Cunningham, Jr. ______________________________________ F. Malcolm Cunningham, Jr. Florida Bar No. 307076 fmcunni@cunninghamlaw.com Amy L. Fischer Florida Bar No. 890499 afischer@cunninghamlaw.com

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