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U.S. Specialty Insurance Co. v. Strategic Planning Associates, LLC

United States District Court, E.D. Louisiana

January 23, 2019

U.S. SPECIALTY INSURANCE CO.
v.
STRATEGIC PLANNING ASSOCIATES, LLC, CHARLOTTE W. BURNELL, AND WILLIAM J. BURNELL

         SECTION “F”

          ORDER AND REASONS

          MARTIN L. C. FELDMAN UNITED STATES DISTRICT JUDGE

         Before the Court is the plaintiff's Rule 12(b)(6) motion to dismiss certain causes of action asserted in the defendants' counterclaim. For the reasons that follow, the motion is GRANTED.

         Background

         This indemnity action arises out of the renovation of a New Orleans charter school and the construction disputes that ensued.

         In 2013, the Louisiana Department of Education Recovery School District, as owner, entered into a contract with Core Construction Services, LLC, as general contractor, for the renovation of Sophie B. Wright High School. Core, in turn, entered into a subcontract with Strategic Planning Associates, LLC, a Disadvantaged Business Enterprise, for the fabrication and erection of steel for the project. As is customary in the construction industry, the subcontract required SPA to provide bonding to secure the performance of its work and ensure payment to its subcontractors and suppliers. Accordingly, SPA turned to United States Specialty Insurance Company. Serving as surety, USSIC issued a performance bond and a payment bond, naming Core as obligee and SPA as principal.

         Months earlier, SPA and its representatives, Charlotte Burnell and William Burnell, had executed a General Indemnity Agreement in favor of USSIC, in which they agreed to “indemnify . . . and hold [USSIC] harmless from and against any and all demands, liabilities, losses, costs, damages, attorneys' fees, and expenses” incurred by USSIC as a result of issuing bonds on behalf of SPA and to reimburse USSIC for any disbursements made by USSIC in good faith. In addition, SPA, as principal, and the Burnells, as indemnitors, assigned to USSIC their “right, title, and interest in . . . any causes of action, claims, demands, or actions of whatsoever kind” that SPA might have against any party to a contract with SPA. Finally, SPA and the Burnells gave USSIC “the right, in its sole and absolute discretion, to adjust, settle, prosecute, defend, compromise, litigate, protest, or appeal any claim, demand, suit, award, assessment or judgment on or in connection with any Bond, Bonded Contract, or Contract, ” and they irrevocably designated USSIC “as their attorney-in-fact with the right, but not the obligation, to exercise all of the rights . . . assigned, transferred and set over to [USSIC] in this Agreement.”

         As the project fell behind schedule, disputes arose between SPA and Core. First, during the spring of 2015, Core issued a notice to cure, informing SPA that steel shop drawings were still incomplete and that SPA's untimeliness had negatively impacted the project's schedule. Later that summer, Core issued two additional notices to cure, again advising SPA that it was behind schedule. Attributing the delay to Core's mismanagement of the project schedule, SPA promptly informed USSIC of its position. SPA related that the project was delayed from the beginning because the site conditions were not accurately depicted on the project's plans and that Core had breached its obligations to SPA under the subcontract in various ways. Nonetheless, upon Core's request, USSIC agreed to send a representative to supervise SPA's scope of work on the project. And despite representing to SPA that he would act in SPA's best interest, the USSIC representative allegedly began communicating directly with Core regarding SPA's obligations under the subcontract and unilaterally commandeered SPA's subcontractors. It is further alleged that, when Core requested that USSIC formally guarantee timely performance of SPA's work, USSIC advised Core that USSIC's performance obligations were not triggered unless and until Core terminated SPA. According to SPA, Core responded by issuing a notice of termination on December 22, 2015 and making demand upon USSIC under the performance bond that same day.

         Disputing the propriety of its termination, SPA urged USSIC to deny Core's claim under the performance bond and advised that it planned to pursue breach of contract claims against Core in excess of $1, 000, 000. USSIC initially denied Core's claim under the performance bond, noting that Core had breached the subcontract with SPA in various ways. In response, Core filed suit against USSIC under the performance bond, alleging damages in the principal sum of $1, 443, 581.79 and additional damages for bad faith; Core also filed an arbitration demand against SPA, seeking more than $1, 000, 000 in damages.[1] Faced with a lawsuit, USSIC chose to settle.

         Pursuant to a settlement agreement dated May 12, 2017, USSIC paid Core $450, 000, settled the claims asserted by Core against USSIC and SPA, and waived SPA's rights against Core. Thereafter, the performance bond suit between Core and USSIC and the arbitration between Core and SPA were dismissed. In dismissing Core's claims against SPA, the arbitrator held that USSIC had the right and authority under the General Indemnity Agreement to settle all causes of action between the parties.[2] In the meantime, many of SPA's subcontractors and suppliers asserted claims against USSIC under the payment bond for work performed on and materials supplied for the project. Based on those claims, USSIC paid SPA's subcontractors and suppliers approximately $720, 438. USSIC also retained a consultant and two law firms to assist in investigating and defending the claims asserted under the performance and payment bonds.

         On August 15, 2018, USSIC filed this lawsuit against SPA, Charlotte Burnell, and William Burnell pursuant to the General Indemnity Agreement. In its complaint, USSIC seeks $1, 339, 756.09 in damages plus all additional losses, attorneys' fees, costs, and expenses incurred as a result of having executed the bonds; interest from the date payments were made by USSIC; and all costs of these proceedings. In response, SPA and the Burnells filed a counterclaim against USSIC, asserting the following causes of action: (1) bad faith breach of the General Indemnity Agreement; (2) bad faith breach of the performance bond; (3) bad faith breach of the payment bond; (4) bad faith breach of fiduciary duty; (5) detrimental reliance; and (6) liability for SPA's claims against Core.[3] USSIC now moves under Federal Rule of Civil Procedure 12(b)(6) for partial dismissal of the defendants' counterclaim, contending that there exist no causes of action against USSIC under Louisiana law for bad faith breach of the General Indemnity Agreement, bad faith breach of the performance bond, bad faith breach of the payment bond, or bad faith breach of a fiduciary duty.

         I.

         Rule 12(b)(6) of the Federal Rules of Civil Procedure allows a party to move for dismissal of a complaint for failure to state a claim upon which relief can be granted. Such a motion is rarely granted because it is viewed with disfavor. See Lowrey v. Tex. A & M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997) (quoting Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982)).

         Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009) (citing Fed.R.Civ.P. 8). “[T]he pleading standard Rule 8 announces does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Stated differently, Rule 8 “does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79.

         In considering a Rule 12(b)(6) motion, the Court “accept[s] all well-pleaded facts as true and view[s] all facts in the light most favorable to the plaintiff.” See Thompson v. City of Waco, Texas, 764 F.3d 500, 502 (5th Cir. 2014) (citing Doe ex rel. Magee v. Covington Cnty. Sch. Dist. ex rel. Keys, 675 F.3d 849, 854 (5th Cir. 2012) (en banc)). But, in deciding whether dismissal is warranted, the Court will not accept conclusory allegations in the complaint as true. Id. at 502-03 (citing Iqbal, 556 U.S. at 678).

         To survive dismissal, “‘a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009) (quoting Iqbal, 556 U.S. at 678) (internal quotation marks omitted). “Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555 (citations and footnote omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (“The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.”). This is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679. “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Id. at 678 (internal quotations omitted) (citing Twombly, 550 U.S. at 557). “[A] plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief'”, thus, “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (alteration in original) (citation omitted).

         Finally, “[w]hen reviewing a motion to dismiss, a district court ‘must consider the complaint in its entirety, as well as other sources ordinarily examined when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.'” Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).

         II.

         As a threshold matter, the Court notes that USSIC's motion to dismiss only challenges four of the causes of action asserted in the defendants' counterclaim and does not address the defendants' detrimental reliance claim or allegation that USSIC is liable for SPA's claims against Core.[4] Accordingly, in deciding this motion, the Court's analysis is restricted to whether or not the defendants have stated a claim for bad faith breach of the General Indemnity Agreement, bad faith breach of the performance bond, bad faith breach of the payment bond, or bad faith breach of a fiduciary duty.

         III.

         The Court first considers the defendants' claims that USSIC breached its obligations to SPA under the performance and payment bonds in bad faith. Specifically, the defendants allege in their counterclaim that, under the terms of the performance bond and the payment bond, USSIC owed SPA duties of good faith and fair dealing and was precluded from taking commercially unreasonable actions and acting in bad faith with SPA. Nonetheless, the defendants complain, USSIC breached such obligations in bad faith. In its motion to dismiss, USSIC contends that USSIC owes no ...


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