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Factory Sales and Engineering, Inc. v. Chubb European Group, Ltd.

United States District Court, E.D. Louisiana

March 14, 2019

FACTORY SALES AND ENGINEERING, INC.
v.
CHUBB EUROPEAN GROUP, LTD, ET AL.

         SECTION: “B”

          OPINION

         Before the Court is Appellant Factory Sales and Engineering, Inc.'s appeal from a decision of the United States Bankruptcy Court for the Eastern District of Louisiana (Rec. Doc. 1, 4). Appellees ACE European Group, Ltd., Westchester Fire Insurance Co., and Chubb European Group, Ltd. filed a response brief (Rec. Doc. 6). Appellant filed a reply brief (Rec. Doc. 10).

         Appellant, Factory Sales and Engineering (“FSE”), has submitted the following Statement of Issues on Appeal from the Judgment of the Bankruptcy Court entered on June 14, 2018 (Rec. Doc. 4):

1. Whether, under the principles of New York contract interpretation law, the Agreement of Indemnity (“Executed Indemnity”) governing the relationship between the Appellees (the "Sureties") and Factory Sales and Engineering, Inc. ("FSE") is ambiguous regarding whether collateral provided to the Sureties for a specific bond must be released to FSE when that bond is released.
2. If the Executed Indemnity is ambiguous, whether, under New York law, it should be construed against the Sureties as its drafters.
3. If the Executed Indemnity is ambiguous, whether, in light of other related instruments and the New York law doctrine of expressio unius est exclusio alterius ("the expression of one thing means the exclusion of other things"), the omission of explicit language providing for cross-collateralization in the Executed Indemnity should be deemed intentional.
4. If the Executed Indemnity is ambiguous, whether the weight of the other extrinsic evidence supports interpreting it to require the Sureties to release collateral provided by FSE for a specific bond to FSE when that bond is released.
5. Whether the Sureties are obligated under New York law to return the disputed deposits to FSE.

         For the reasons discussed below, IT IS ORDERED that the opinion of the Bankruptcy Court is AFFIRMED, dismissing the instant appeal at appellant's costs.

         Factory Sales and Engineering, Inc. (FSE) was in the business of designing, manufacturing and installing large pieces of industrial equipment for various clients around the world. See Rec. Doc. 2-5. Sometime in 2012, FSE was in contact with an insurance broker, Marsh, Inc. (Marsh). See Rec. Doc. 2-5 at 70. Because some of FSE's customers required FSE to provide surety bonds, FSE was put in contact with ACE European Group, Ltd., Westchester Fire Insurance Co., and Chubb European Group, Ltd. (“the Sureties”. See id. In September 2012, the Sureties began issuing bonds for FSE. See id. To protect themselves against the risk of loss on the bonds, the Sureties required that FSE sign the Indemnity Agreement. Id. Under the Indemnity Agreement, FSE was required to deposit cash collateral with the Sureties. Id. at 71.

         On May 9, 2017, FSE filed a petition in state court seeking the return of $2.35 million in collateral held by the Sureties. See Rec. Doc. 2-5. On June 6, 2017, an involuntary Chapter 7 petition was filed against FSE by several of its creditors. Id. The Sureties removed the case to federal court. Id. at 62. On July 17, 2017, the case was converted to a Chapter 11 reorganization. See Rec. Doc. 2-5. After hearing testimony and reviewing the evidence, the Bankruptcy Court found that the Sureties were entitled to keep the $2.35 million in collateral and apply it to any outstanding claims on projects that were not completed by FSE. Id. at 184-85. Specifically, the Bankruptcy Court held that the language was not ambiguous and that it called for a cross-collateralization of bonds. Id. The Bankruptcy Court further found that even if the language of the contract was ambiguous, the extrinsic evidence supported the result that the Sureties were entitled to hold onto the collateral at issue. Id. at 184-99.

         On June 26, 2018, FSE filed a notice of appeal. See Rec. Doc. 1.

         Appellant argues that this Court should reverse the ruling of the Bankruptcy Court because the executed indemnity agreement at issue does not provide for cross-collateralization among separate bonds. See Rec. Doc. 4 at 6. Specifically, Appellant argues that the collateral is bond-specific. Id. According to Appellant, the language in the executed indemnity agreement is ambiguous as a matter of New York law. Id. at 7. Therefore, Appellant urges this court to construe the agreement against the Appellees and render judgment in favor of Appellant. Id.

         Appellees argue that the ruling of the Bankruptcy Court should be upheld because the collateral is cross-collateralized across multiple bonds issues in other projects that Appellant has worked on. See Rec. Doc. 6 at 9-10. Specifically, Appellees argue that they are entitled to keep the funds and use those funds to pay ...


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