R. DAVID PROCTOR, District Judge.
Before the court is Plaintiff's Renewed Motion for Summary Judgment (Doc. # 55), filed on January 17, 2013 and Plaintiff's Motion to Strike (Doc. # 100), filed on April 23, 2013. The Motion for Summary
Plaintiff, The Hanover Insurance Company, ("Plaintiff" or "Hanover") initiated this action by filing a Verified Complaint for Exoneration of Surety (Doc. # 1) on March 9, 2012 against Defendants Hudak & Dawson Construction Company, Inc. ("H & D Construction"), Hudak & Dawson Development Company, LLC ("H & D Development"), Timothy P. Hudak ("Hudak"), Janis Lynn Hudak ("J. Hudak"), Bart D. Dawson ("Dawson"), Melanie Dawson ("M. Dawson"), John W. Dawson ("J. Dawson"), and Betty Joan Dawson ("B. Dawson") (collectively "Defendants" or "Indemnitors")
Defendant Dawson filed a cross claim against Defendant Hudak on July 24, 2012.
On November 7, 2012, Plaintiff filed a Motion for Summary Judgment (Doc. # 29), a brief in support of the motion (Doc. # 30), and evidentiary material (Doc. # 31). On November 26, 2012, Defendants H & D Construction, H & D Development, Hudak, and J. Hudak ("Hudak Defendants") filed a Rule 56(d) Motion requesting that the court deny or table Plaintiff's Motion for Summary Judgment pending discovery related to Plaintiff's damages. (Doc. # 33). After that motion was filed and after learning of another discovery dispute, the court set a status conference for December 4, 2012. (Doc. #34). In
Plaintiff's Renewed Motion for Summary Judgment (Doc. #55) requests that the court: (1) enter judgment in its favor in the amount of Two Million Eight Thousand Five Hundred Eighty-Six Dollars and 74/100 ($2,008,586.74) for all losses, costs, and expenses Plaintiff had incurred to date as a result of having issued bonds on behalf of H & D Construction; (2) enter summary judgment on its claim for exoneration and enter an order requiring Defendants, separately and severally, to deposit cash collateral with Plaintiff in the amount of Two Million One Hundred Fifty-One Thousand One Hundred Twenty-Seven Dollars and 42/100 ($2,151,127.42) pending the resolution of all remaining claims Plaintiff has received relative to bonds it issued on behalf of H & D Construction. Plaintiff submitted a memorandum of law (Doc. # 56) and evidence
On April 8, 2013, Defendants Hudak, J. Hudak, H & D Construction, and H & D Development filed a Response in Opposition to Plaintiff's Renewed Motion for Summary Judgment (Doc. # 89) and evidence
Under Federal Rule of Civil Procedure 56(a), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Chapman v. AI Transport, 229 F.3d 1012, 1023 (11th Cir.2000). The party asking for summary judgment always bears the initial responsibility of informing the court of the basis for its motion and identifying
The substantive law will identify which facts are material and which are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Chapman, 229 F.3d at 1023. All reasonable doubts about the facts and all justifiable inferences are resolved in favor of the nonmovant. Chapman, 229 F.3d at 1023; Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505; Chapman, 229 F.3d at 1023. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505. The method used by the party moving for summary judgment to discharge its initial burden depends on whether that party bears the burden of proof on the issue at trial. See Fitzpatrick, 2 F.3d at 1115-17 (citing United States v. Four Parcels of Real Property, 941 F.2d 1428 (11th Cir.1991) (en banc)).
If a moving party bears the burden of proof at trial, then it can only meet its initial burden on summary judgment by coming forward with positive evidence demonstrating the absence of a genuine issue of material fact (i.e. facts that would entitle it to a directed verdict if not controverted at trial). Fitzpatrick, 2 F.3d at 1115. Once a moving party makes such a showing, the burden shifts to the nonmoving party to produce significant, probative evidence demonstrating a genuine issue for trial.
If a moving party does not bear the burden of proof at trial, it can satisfy its initial burden on summary judgment in either of two ways. First, a movant may produce affirmative evidence negating a material fact, thus demonstrating that the nonmoving party will be unable to prove its case at trial. Once a moving party satisfies its burden using this method, the nonmoving party must respond with positive evidence sufficient to resist a motion for directed verdict at trial.
The second method by which a moving party who does not bear the burden of proof at trial can satisfy its initial burden on summary judgment is to affirmatively show the absence of evidence in the record to support a judgment for the nonmoving party on the issue in question. This method requires more than a simple statement that a nonmoving party cannot meet its burden at trial but does not require evidence negating the nonmovant's claim; it simply requires a movant to point out to the district court that there is an absence of evidence to support the nonmoving party's case. Fitzpatrick, 2 F.3d at 1115-16.
If a movant meets its initial burden by using this second method, the nonmoving party may either point out to the court record evidence, overlooked or ignored by the movant, sufficient to withstand a directed verdict, or a nonmoving party may come forward with additional evidence sufficient to withstand a directed verdict motion at trial based on the alleged evidentiary deficiency. However, when responding, a nonmovant can no longer rest on mere allegations, but must set forth evidence of specific facts. Lewis v. Casey, 518 U.S. 343,
In 1995 or 1996, Hudak and Dawson formed H & D Construction, and they are the sole shareholders of that company. (Doc. # 57-1, Ex. A, Dawson Dep. at 12-13). In 2005, in order to induce Plaintiff to issue surety bonds on behalf of H & D Construction, Defendants
Plaintiff issued performance and payment bonds on behalf of H & D Construction on various projects including: the Huntsville Airport Expansion; the UAB Wallace Tumor Institute Renovation ("UAB WTI Renovation"); and, the Basement Demolition for the WTI Advanced Imagining Center ("UAB Basement Demolition"). (Doc. # 57-2, Ex. B-2, Huntsville Bonds; Doc. # 57-2, Ex. B-3, UAB WTI Renovation Bonds; Doc. # 57-2, Ex. B-7, UAB Basement Demolition Bonds). H & D Construction's contract on the UAB WTI Renovation was for $6,474,300.00 (Doc. # 57-6, Ex. F, WTI Contract). H & D Construction's contract on the UAB Basement Demolition was for $437,507.00.
In 2011, prior to issuing bonds on the UAB Basement Demolition, Plaintiff requested that Defendants Hudak and Dawson supplement the 2005 Agreement of Indemnity. (Doc. #57-2, Ex. B, Black Aff. at 6). The supplemental Agreement of Indemnity was executed on March 8, 2011
On September 21, 2011, the architect for the UAB projects sent Notices to Cure to H & D Construction after learning H & D Construction had abandoned both job sites prior to completion. (Doc. # 57-3, Ex. C, Second Cotto Aff. at 2; Doc. # 57-3, Ex. C-1, Notice to Cure Letters). Plaintiff received copies of these letters. (Doc. #57-3, Ex. C, Second Cotto Aff. at 2). Plaintiff began an investigation and demanded that Defendants post collateral in the amount of $1,000,000.00 pending final resolution of all potential claims under the performance and payment bonds. (Doc. #57-3, Ex. C-2, September 29, 2011 Demand Letter). Plaintiff determined that H & D Construction was in default of both UAB contracts. (Doc. # 57-3, Ex. C, Second Cotto Aff. at 3). Plaintiff also learned that Defendants J. Dawson, B.J. Dawson, and Dawson had filed a lawsuit in state court against Defendant Hudak. (Doc. #57-5, Ex. D, Complaint; Doc. #57-6, Ex. E, Motion to Intervene). Ultimately, UAB terminated its contracts with H & D Construction. (Doc. # 57-3, Ex. C, Second Cotto Aff. at 3).
In October 2011, Plaintiff hired Robert C. Gentle Construction Consultants ("Gentle
Plaintiff's corporate representative, Toby Pilcher ("Pilcher"), testified that Plaintiff sent employees to H & D Construction's corporate offices to analyze the accounting, outstanding expenses, and remaining payments on the UAB projects. (Doc. # 89-2, Ex. B, Pilcher Dep. at 53-54). Matt Kilgore ("Kilgore"), a project supervisor for Gentle Consulting, tracked money paid by UAB under both the original H & D Construction contracts and then the contracts with Plaintiff to complete the projects. (Doc. #89-4, Ex. D, Kilgore Dep. at 5-6). Kilgore documented the amount Plaintiff was required to pay above the original contract prices, any changes to the contracts, and money paid to subcontractors. (Doc. # 89-4, Ex. D, Kilgore Dep. at 5-6).
Although Plaintiff can estimate its total loss, a final amount is incalculable at this time. The UAB WTI Renovation was not scheduled to be complete until, at the earliest, late April 2013. (Doc. # 89-2, Ex. B, Pilcher Dep. at 62). Following completion of this project, Plaintiff will finalize accounting and resolve outstanding disputes with UAB, subcontractors, and material men. (Doc. # 89-2, Ex. B, Pilcher Dep. at 62-65; Doc. #89-4, Ex. D, Kilgore Dep. at 111). UAB is also reserving its right to make a claim for liquidated damages because of delays in completing the original contracts. (Doc. # 57-3, Ex. C, Second Cotto Aff. at 3; Doc. # 89-2, Ex. B, Pilcher Dep. at 64). Plaintiff is currently involved in disputes with subcontractors on the projects over funds that may have to be paid by, or refunded to, Plaintiff. (Doc. # 89-4, Ex. D, Kilgore Dep. at 57-59; 64-65).
Plaintiff argues that it is entitled to: (1) reimbursement under (a) its common law right to indemnification and (b) the terms of the 2005 and 2011 Agreements
Defendants' Response in Opposition to Plaintiff's Renewed Motion for Summary Judgment (Doc. # 89) does not dispute the issue of liability under the Agreements of Indemnity. The Response in Opposition is grounded on three contentions: (1) Plaintiff's Renewed Motion for Summary Judgment is not ripe for review because Plaintiff has not performed a final accounting and cannot yet determine final project completion costs; (2) genuine issues of material fact exist regarding the estimated cost of completion; and (3) genuine issues of material fact exist regarding the applicability and extent of the asset exclusion provision accompanying the 2005 Agreement of Indemnity. (Doc. # 89).
Initially, the court rejects Defendants' contention that Plaintiff's Renewed Motion for Summary Judgment is not ripe for review because the final construction costs have not been calculated. As outlined in greater detail below, multiple courts have enforced a surety's right to reimbursement and/or collateralization for payments made and future losses incurred on bonded obligations based solely upon indemnity provisions that were triggered upon a principal's default. Moreover, Defendants' assertion that Plaintiff's Motion should be denied because issues of fact exist regarding asset exclusions rings hollow. The applicability of the asset inclusions of the 2005 Agreement of Indemnity has no bearing whatsoever on Defendants' liability under both the 2005 and 2011 Agreements of Indemnity. Any argument to that effect is relevant only to execution of any judgment, and therefore will not be addressed here. Thus, the only potentially viable argument left is Defendants' allegation that disputes of fact regarding the estimated cost of completion preclude summary judgment. That issue will be addressed below in the context of an analysis of Defendants' obligations to reimburse Plaintiff under the Agreements of Indemnity.
Plaintiff argues that because it had made payments pursuant to bonds issued on behalf of H & D Construction, Defendants must indemnify Plaintiff for those payments, plus interest, expenses, and attorney's fees pursuant to the 2005 and 2011 Agreements of Indemnity and the law. Under Alabama law, a surety's right of reimbursement from its principal for losses incurred on bonded obligations is established in a number of ways — by common law, contract, and statute. See SouthTrust Bank of Ala., N.A. v. Webb-Stiles, Co., Inc., 931 So.2d 706, 712 (Ala. 2005) ("When a surety satisfies the principal's obligation, it is entitled to reimbursement or restitution from the principal."); Doster v. Cont'l Cas. Co., 268 Ala. 123, 105 So.2d 83, 85-86 (1958) ("Upon the payment by surety of the debt, for which is he bound, it being then due, a right of action for reimbursement arises in his favor against the principal."). In fact, "the rule in most jurisdictions is that `[a] surety is entitled to reimbursement pursuant to an indemnity contract for any payments made by it in a good faith belief that it was required to pay, regardless of whether any liability actually existed.'" Frontier Ins. Co. v. Int'l, Inc., 124 F.Supp.2d 1211, 1213 (N.D.Ala.2000) (quoting Employers Ins. of Wausau v. Able Green, Inc., 749 F.Supp. 1100, 1103 (S.D.Fla.1990)). "The only exception... arises when the payment has been made `through fraud or lack of good faith' on the part of the surety...." Fidelity
In addition to rights created under common law and valid indemnity agreements, a surety's right to reimbursement in Alabama is codified through legislation providing for the indemnification of a surety for liabilities caused by a principal's default. The Alabama Code provides that "[p]ayment by a surety ... of a debt past due entitles him to proceed immediately against his principal for the sum paid, with interest thereon, and all legal costs to which he may have been subjected by the default of the principal." Ala. Code. § 8-3-5 (1975). Thus, based contract principles and applicable law, if a surety sufficiently demonstrates that it has made payments on bonds issued on behalf of its principal, the surety may recover those payments, interest, expenses, and attorney's fees.
The court does not dispute the general principle that "[u]pon the payment by surety of the debt, for which is he bound, it being then due, a right of action for reimbursement arises in his favor against the principal." Doster, 105 So.2d at 85-86. Here, however, because the parties entered into Agreements of Indemnity, Plaintiff may not rely on a common law theory of indemnification. See e.g., Nw. Nat. Ins. Co. v. Lutz, 71 F.3d 671, 677 (7th Cir. 1995) ("We agree that the existence of a separate indemnification agreement dictates that the rights of the parties will be determined according to that document," rather than implied indemnity principles); Fidelity & Deposit Co., 722 F.2d at 1163 (in the case of an express indemnification contract, the rights of sureties are not determined by general indemnity principles but upon the contract of indemnification); Com'l Ins. Co. of Newark v. Pacific-Peru Constr., 558 F.2d 948, 953 (9th Cir. 1977) ("[R]esort to implied indemnity principles is improper when an express indemnification contract exists."); Ohio Casualty Ins. Co. v. Holcim (US), Inc., 2007 WL 2807570 at * 11 (S.D.Ala. Sept.25, 2007), rev'd on other grounds, 589 F.3d 1361 (11th Cir.2009) ("[A] clear majority of courts have found that a party is proscribed from recovering on an implied indemnity theory where the parties executed an express written indemnity agreement.... This Court joins the myriad authorities cited above and finds that parties' rights to common law indemnity are cut off where those parties enter into an express indemnity agreement, through which they themselves delineate when and under what such circumstances an indemnification obligation will arise."). Accordingly, Plaintiff's right to reimbursement, if any, arises under the Agreements of Indemnity.
The Agreements of Indemnity in favor of Plaintiff require Defendants to "exonerate, indemnify, and save harmless the Surety from and against every claim, demand, liability, cost, charge, suit, judgment and expense which the Surety may pay or incur, including, but not limited to, loss, interest, court costs and consultant and attorney fees...." (Doc. # 57-2, Ex. B-1, 2005 Agreement of Indemnity at 2; Doc. # 57-2, Ex. B-6, 2011 Agreement of Indemnity at 2). Defendants do not deny that they are bound by the terms of the Agreements of Indemnity.
"[I]ndemnitors can defeat a surety's right to recover under indemnity provisions by demonstrating either fraud of lack of good faith on the part of the surety in discharging its obligations under the bond." Frontier Ins. Co., 124 F.Supp.2d at 1214; see also Fidelity & Deposit Co., 722 F.2d at 1163 (noting that contractual indemnity agreements are routinely enforced absent the "single exception" of payments made by the surety through fraud or bad faith); Engbrock v. Fed. Ins. Co., 370 F.2d 784, 786 (5th Cir.1967) ("In the face of these provisions, an indemnitor may successfully attack payments made by [the surety] only by pleading and proving fraud or lack of good faith by [the surety].").
"In the suretyship context, lack of good faith `carries an implication of dishonest purpose, a conscious doing of wrong, a breach of duty through motives of self-interest or ill-will.'" Frontier Ins. Co., 124 F.Supp.2d at 1214 (quoting Elmore v. Morrison Assurance Co., 502 So.2d 378, 380 n. 1 (Ala.1987)). To establish bad faith, the indemnitor must demonstrate that the surety acted with "deliberate malfeasance, which is an intentional wrongful act which the action has no legal right to do, or any wrongful conduct which affects, interrupts, or interferes with the performance of official legal duty." Employers Ins. of Wausau, 749 F.Supp. at 1103. A "lack of diligence or negligence is not the equivalent of bad faith, and even gross negligence is not the same as bad faith." Id.
Nowhere in Defendants' Response in Opposition do they claim Plaintiff fraudulently made payments and they have not made any specific allegation of bad faith. Nevertheless, the court will construe Defendants' assertions on this point as alleging Plaintiff made payments in bad faith. Even based upon that generous reading, these arguments fall woefully short. Defendants contend that Plaintiff, Plaintiff's outside consultant overseeing completion of the UAB projects, and Defendants all cite conflicting figures regarding the cost of completion, creating a dispute of fact regarding damages.
First, these arguments do not create a dispute of material fact sufficient to deny summary judgment. By signing the Agreements of Indemnity, Defendants agreed that Plaintiff may determine "in its sole discretion" the amount sufficient for it to be indemnified and that "[v]ouchers or other evidence of payment by the Surety shall be conclusive evidence of the fact and amount of such liability, necessity, or expediency and of the Indemnitors' liability to the Surety therefore." (Doc. # 57-2, Ex. B-1, 2005 Agreement of Indemnity at 3; Doc. # 57-2, Ex. B-6, 2011 Agreement of Indemnity at 3). Here, Plaintiff has submitted evidence asserting its has incurred $3,570,964.97 in losses as of April 22, 2013, arising from the performance and payment bonds issued on behalf of H & D Construction. (Doc. # 99-1, Ex. K, Third Smith-Cotto Aff. at 4). Plaintiff's evidence includes a detailed record of its payments, including the name of various payees, check numbers, the amount, and date of payment.
Not only is the evidence submitted by Plaintiff regarding payment evidence of the amount of liability, but also Defendants do not dispute the amount Plaintiff has paid to date. Defendants only attack the reasonableness of these payments and argue that summary judgment should be denied because the final completion costs are unknown. These allegations are insufficient to demonstrate that Plaintiff made
In addition to reimbursement for incurred losses to date, Plaintiff argues that Defendants' obligations apply to all anticipated losses. According to the Agreements of Indemnity, the parties agreed that "if the amount asserted as a claim, demand or suit is unascertainable" Defendants would pay upon demand "the amount [Plaintiff] deems sufficient to indemnify and hold it harmless" and Plaintiff has the "right to hold such funds as collateral...." (See Doc. # 57-2, Ex. B-1, 2005 Agreement of Indemnity at 3; Doc. # 57-2, Ex. B-6, 2011 Agreement of Indemnity at 3). Plaintiff twice demanded cash collateral security from Defendants pursuant to this provision. (Doc. # 57-3, Ex. C-2, September 29, 2011 Demand Letter for $1,000,000.00; Doc. # 57-3, Ex. C-3, October 31, 2012 Demand Letter for $4,159,723.16). Thus, Plaintiff seeks summary judgment ordering specific performance of the collateral security provisions of the Agreements of Indemnity. (Doc. # 56). Defendants respond that (1) none of the authority cited by Plaintiff supports an award on summary judgment as to projected, speculative losses, and (2) even if the court were to determine that specific performance is an appropriate remedy, such a remedy is far different from entry of judgment with a specific monetary award of damages. (Doc. # 89).
It is has long been established that specific performance is an appropriate remedy only "when[] it is made to appear that an action at law for damages would be an inadequate or impracticable remedy." Gen. Secs. Corp. v. Welton, 223 Ala. 299, 135 So. 329, 331 (1931). The decision to grant specific performance rests largely in the discretion of the trial judge. See e.g., Edwards v. Thornburgh, 396 So.2d 678, 680 (Ala.1981). And, "whether relief shall be granted depends upon an equitable consideration of the specific circumstances of each case." Stringfellow Materials, Inc. v. Lee, 438 So.2d 1387, 1390 (Ala.1983).
In the context of a surety's motion for summary judgment on a claim for specific performance of a collateral security provision of an indemnity agreement, the court understands there is a split of authority on the issue. Compare Safeco Ins. Co. of Am. v. Mountaineer Grading Co., 2012 WL 830158 at * 9 (S.D.W.Va. March 9, 2012) (finding that the surety failed to demonstrate it was entitled to specific performance
Plaintiff also seeks "immediate funds from Defendants to protect it from further liability resulting from the issuance of bonds on behalf of H & D Construction." (Doc. # 56). Plaintiff maintains is entitled to such funds under the common law doctrine of quia timet because it fears "that Defendants will be unable or unwilling to satisfy any remaining claim that is determined to be meritorious." (Doc. # 56). Quia timet is an equitable device whereby courts can protect some party against an anticipated future injury. See Doster, 105 So.2d at 86 ("A court of equity will also prevent injury in some cases, by interposing before any actual injury has been suffered, by a bill which has sometimes been called a bill quia timet, in analogy to proceedings at the common law, where in some cases a writ may be maintained before any molestation, distress, or impleading.") (internal citations omitted). Other than Doster, Plaintiff has not cited (and the court is unaware) of any Alabama authority applying this doctrine in the context of a surety situation. There is a dearth of recent (and relevant) Alabama or Eleventh Circuit authority examining the application of this common law doctrine
For the reasons stated above, Plaintiff's Renewed Motion for Summary Judgment is due to be granted in part and denied in part. Summary judgment is due to granted on Plaintiff's claim for contractual indemnity. Summary judgment is due to be denied on Plaintiff's claims for common law indemnity, specific performance of the collateral security provision, and funds under the doctrine of quia timet.
Additionally, Plaintiff's Motion to Strike Portions of the Affidavit of Defendant Tim Hudak (Doc. # 100) is due to be terminated as moot.
A separate order consistent with this memorandum opinion will be entered.