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

United States District Court, E.D. Louisiana

May 22, 2019

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

         SECTION “F”

          ORDER AND REASONS

          MARTIN C. FELDMAN UNITED STATES DISTRICT JUDGE

         Before the Court are two summary judgment motions by the plaintiff: (1) motion for summary judgment on the plaintiff's affirmative claims; and (2) motion for partial summary judgment on count six of the defendants' counterclaim, pertaining to the plaintiff's purported liability for SPA's claims against Core. For the reasons that follow, the motion for summary judgment on the plaintiff's affirmative claims is GRANTED, in part, and DENIED, in part, and the plaintiff's motion for partial summary judgment on count six of the defendants' counterclaim 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.[1]

         Months earlier, on April 8, 2014, 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. SPA and the Burnells also 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, ” while retaining the right to challenge USSIC's settlement of claims for lack of good faith, provided that they had delivered collateral security to cover USSIC's perceived exposure. Finally, the indemnitors 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 [the Indemnity] 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 incomplete and that SPA's untimeliness had negatively impacted the project's schedule. SPA responded that it was unable to begin working because other vendors had not yet performed necessary demolition work; Core agreed to modify the 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. Nonetheless, upon Core's request, USSIC retained consultant Mark Stein of the Guardian Group, Inc. 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 began communicating directly with Core regarding SPA's obligations under the subcontract. According to the affidavit of Charlotte Burnell, Stein also encouraged her to request financial assistance from USSIC to pay outstanding invoices from SPA's subcontractors and suppliers until USSIC or SPA could collect from Core. USSIC then decided to pay various invoices from Triple G Steel & Supply, Inc., All Crane Rental of Louisiana, LLC, and other suppliers and subcontractors, even though the entities had not filed claims against USSIC under the payment bond.

         On December 22, 2015, Core issued a notice of termination to SPA and made demand upon USSIC under the performance bond that same day. Jason Bruzik, who worked for Core at that time, has testified that USSIC threw SPA under the bus and encouraged Core to terminate the subcontract. Disputing the propriety of its termination, SPA urged USSIC to deny Core's claim under the performance bond. Through two extensive letters, counsel for SPA explained to USSIC's attorney that Core had breached its obligations to SPA under the subcontract in various ways, relieving USSIC of any obligations to Core under the performance bond.

         By letter dated February 19, 2016, USSIC made demand on SPA and the Burnells for the deposit of $1, 000, 000 in collateral security to cover amounts paid to SPA's subcontractors and suppliers in connection with the payment bond, as well as USSIC's potential exposure with respect to Core's claim under the performance bond. Counsel for SPA and the Burnells responded to USSIC's demand on March 4, 2016, advising that his clients would not deliver collateral security at that time:

At this point in time the Indemnitors are not delivering the collateral security . . . . Instead, the Indemnitors request that they be given an extension of time so that SPA can illustrate why the collateral demand . . . is premature and not warranted, and why the amount of $ 1 million is excessive.[2]

         In the meantime, on February 24, 2016, USSIC denied Core's claim under the performance bond based on its findings that Core had breached various provisions of its subcontract with SPA. Five months later, on July 29, 2016, Core sued 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, and SPA filed a counterclaim against Core also seeking to recover in excess of $1, 000, 000.[3] Despite previously taking the position that it was not liable to Core because Core had breached the subcontract with SPA, USSIC reversed course and decided 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. SPA was not aware of the settlement until after the agreement was confected. Thereafter, the performance bond suit between Core and USSIC, as well as 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.[4]Meanwhile, USSIC also made payments to the following subcontractors and suppliers of SPA:

Triple G Steel & Supply, Inc.

$ 325, 396.01

All Crane Rental of Louisiana, LLC

$ 158, 092.50

JE Consulting and Construction, LLC

$ 145, 000.00

New Orleans Iron Works LLC

$ 11, 380.00

United Rentals (North America), LLC

$ 72, 569.98

Gulf Coast Industrial Service

$ 8, 000.00

         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.[5] In December of 2018, USSIC moved for partial dismissal of the defendants' counterclaim under Rule 12(b)(6), contending that no cause of action exists against USSIC under Louisiana law for bad faith breach of the General Indemnity Agreement, the performance bond, the payment bond, or fiduciary duty. In its Order and Reasons dated January 23, 2019, this Court granted USSIC's motion and dismissed the aforementioned claims with prejudice.

         USSIC now moves for summary judgment on its affirmative claims and for partial summary judgment on count six of the defendants' counterclaim, which concerns USSIC's purported liability for SPA's claims against Core.

         I.

         Federal Rule of Civil Procedure 56 instructs that summary judgment is proper if the record discloses no genuine dispute as to any material fact such that the moving party is entitled to judgment as a matter of law. No. genuine dispute of fact exists if the record taken as a whole could not lead a rational trier of fact to find for the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A genuine dispute of fact exists only “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         The mere argued existence of a factual dispute does not defeat an otherwise properly supported motion. See id. In this regard, the non-moving party must do more than simply deny the allegations raised by the moving party. See Donaghey v. Ocean Drilling & Exploration Co., 974 F.2d 646, 649 (5th Cir. 1992). Rather, he must come forward with competent evidence, such as affidavits or depositions, to buttress his claims. Id. Hearsay evidence and unsworn documents that cannot be presented in a form that would be admissible in evidence at trial do not qualify as competent opposing evidence. Martin v. John W. Stone Oil Distrib., Inc., 819 F.2d 547, 549 (5th Cir. 1987); Fed.R.Civ.P. 56(c)(2). “[T]he nonmoving party cannot defeat summary judgment with conclusory allegations, unsubstantiated assertions, or only a scintilla of evidence.” Hathaway v. Bazany, 507 F.3d 312, 319 (5th Cir. 2007) (internal quotation marks and citation omitted). Ultimately, “[i]f the evidence is merely colorable . . . or is not significantly probative, ” summary judgment is appropriate. Anderson, 477 U.S. at 249 (citations omitted); King v. Dogan, 31 F.3d 344, 346 (5th Cir. 1994) (“Unauthenticated documents are improper as summary judgment evidence.”).

         Summary judgment is also proper if the party opposing the motion fails to establish an essential element of his case. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). In deciding whether a fact issue exists, courts must view the facts and draw reasonable inferences in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007). Although the Court must “resolve factual controversies in favor of the nonmoving party, ” it must do so “only where there is an actual controversy, that is, when both parties have submitted evidence of contradictory facts.” Antoine v. First Student, Inc., 713 F.3d 824, 830 (5th Cir. 2013) (internal quotation marks and citation omitted).

         II.

         USSIC moves for: (1) summary judgment on its affirmative claims for the sum of $1, 355, 227.29, plus all additional losses, costs, expenses, consulting fees, and attorneys' fees incurred as a result of having issued the bonds; and (2) partial summary judgment on count six of the defendants' counterclaim, which pertains to USSIC's purported liability for SPA's claims against Core.

         In support of both motions, USSIC submits that the General Indemnity Agreement governs the relationship between the parties and that the defendants' only possible defense to their indemnity obligation and vehicle for challenging USSIC's waiver of SPA's own claims against Core is USSIC's lack of good faith. Because the defendants failed to satisfy the condition precedent required to challenge USSIC's good faith with respect to the settlement of claims, USSIC submits, the defendants can neither evade their indemnity obligation, nor recover from USSIC respecting its decision to settle SPA's claims against Core.

         The defendants counter that summary judgment is premature because discovery is in its early stages, and in any event, genuine issues of material fact exist as to whether USSIC acted in good faith in settling with Core under the performance bond and in paying SPA's ...


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