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City of Galveston v. Consolidated Concepts, Inc.

United States District Court, S.D. Texas, Galveston Division

March 31, 2017

CITY OF GALVESTON, Plaintiff,
v.
CONSOLIDATED CONCEPTS, INC., et al . Defendants.

          MEMORANDUM AND ORDER

          George C. Hanks Jr. United States District Judge

         After Hurricane Ike struck Galveston Island in 2008, the City of Galveston received federal funds in order to repair homes and other structures within the City. Consolidated Concepts, Inc. was a general contractor who was awarded contracts in 2011 under this program, and Consolidated Concepts, in turn, then entered into various subcontracts and other relationships to obtain supplies and perform work.

         According to the City, it received complaints from several of Consolidated Concepts' subcontractors that they were not being paid, so the City began a practice of instead often issuing checks that were jointly payable to both Consolidated Concepts and one of its subcontractors. However, according to the City, beginning in January 2013, Consolidated Concepts did not negotiate these checks and the checks instead “went stale, ” leaving the City in possession of $700, 684.94.[1]

         After the City received numerous conflicting claims for the money, including notice of a tax lien from the United States, it sought to interplead the funds with the District Clerk of Galveston County, asking the court to determine the proper allocation of the funds. On August 1, 2014, the United States removed the lawsuit to this Court. Dkt. 1.

         The Court previously granted summary judgment for the City of Galveston, finding that the City's interpleader was proper and dismissing the City from this case. Dkt. 72. Now pending before the Court are multiple cross-motions for summary judgment or partial summary judgment filed by the following: Ideal Lumber Company (Dkt. 95); Solar Supply, Inc. (Dkt. 96); Elevators of Texas (Dkt. 97)[2]; Texas Bonding Company (Dkt. 98); the United States of America (Dkt. 99); CCI Housing, LLC (Dkt. 101).

         THE CLAIMANTS

         The United States: The United States claims that it is entitled to all of the interpleaded funds because Internal Revenue Service filed federal tax liens with the Texas Secretary of State in September and October 2013, stating that Consolidated Concepts had failed to pay its unemployment taxes in 2012 as well as its employment taxes for 2 ½ years between the end of 2010 through the beginning of 2013. The United States contends it is entitled to $ 1, 164, 841.56-all of the interpleaded funds.

         The Surety: American Contractors Indemnity Company d/b/a Texas Bonding Company (“Texas Bonding”) alleges that it into surety agreements with Consolidated Concepts and its owners, issuing performance and payment bonds on behalf of Consolidated Concepts in connection with multiple construction projects in the States of Texas and Arizona. A number of these bonds were issued for Consolidated Concepts' projects in Galveston. Consolidated Concepts' owners executed an indemnity agreement with Texas Bonding on April 19, 2011, and Texas Bonding filed notice of that indemnity agreement via a UCC-1 instrument filed with the Texas Secretary of State on February 28, 2012. Texas Bonding alleges that it has suffered over $1, 000, 000 in losses on the bonds it issued to Consolidated Concepts, and it therefore argues that it is entitled to all of the interpleaded funds.

         The Lender/Judgment Creditor: CCI Housing argues it lent Consolidated Concepts advance funds to pay for “costs associated with the Galveston Contracts”. In exchange for $875, 000, Consolidated Concepts signed a Promissory Note on June 27, 2011, amended January 13, 2012, and a Security Agreement granting CCI Housing a security interest in its “accounts receivable, contract rights, and compensation” from the Galveston work. Consolidated Concepts also signed a Settlement Agreement in favor of CCI Housing in January 2012, agreeing that it owed CCI Housing an additional $409, 024.69. CCI Housing filed UCC-1 Financing Statements for these debts in December 2011 and August 2012 with the Texas Secretary of State's Office.

         After Consolidated Concepts failed to pay the amounts owed, CCI Housing initiated an arbitration proceeding by filing suit in state court. At arbitration in July 2013, CCI Housing was awarded $ 1, 284, 024.69. This award was entered as a final judgment in District Court in Harris County, Texas on October 14, 2013.

         Accordingly, CCI Housing now contends that it is entitled to receive at least $305, 656.48 of the interpleaded funds.

         The Subcontractors and Materialmen: Ideal Lumber Company, Solar Supply, and Elevators of Texas are subcontractors and materialmen who allege that they are also each entitled to some part of the interpleaded funds under Section 162 of the Texas Property Code, the Texas Construction Trust Fund Act.

         APPLICABLE LAW

         Summary judgment is appropriate when the movant shows there are no genuine issues of material fact and “the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine dispute of material fact exists when the “evidence is sufficient for a reasonable jury to return a verdict for the non-moving party.” Willis v. Cleco Corp., 749 F.3d 314, 317 (5th Cir. 2014). “When assessing whether a dispute as to any material fact exists, we consider all the evidence in the record but refrain from making credibility determinations or weighing the evidence; instead, we draw all reasonable inferences in favor of the nonmoving party.” Haire v. Bd. of Supervisors of La. State Univ. Agric. & Mech. Coll., 719 F.3d 356, 362 (5th Cir. 2013) (citation omitted); see also Bryan v. McKinsey & Co., 375 F.3d 358, 360 ...


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