Opinion
Civil Action 20-17094 (MAS) (TJB)
06-29-2022
NORTH AMERICAN SPECIALTY INSURANCE COMPANY, Plaintiff, v. CARDINAL CONRACTING COMPANY, LLC et al., Defendants.
Not For Publication
MEMORANDUM OPINION
MICHAEL A SHIPP UNITED STATES DISTRICT JUDGE
This matter comes before the Court on Plaintiff North American Specialty Insurance Company's (“NASIC”) Motion for Summary Judgment. (ECF No. 24.) Defendants Cardinal Contracting Company, LLC (“Cardinal”), Red Lion Management, LLC (“Red Lion”), Quarry Master Supply, LLC (“Quarry Master”), Cardinal Marine Services, LLC (“Cardinal Marine”), Michael J. Stavola (“Michael Stavola”), and Andrea R. Stavola (“Andrea Stravola”) (collectively, the “Stavolas” and with the other defendants, “Defendants” or “Indemnitors”) opposed (ECF No. 29), and NASIC replied (ECF No. 33). The Court has carefully considered the parties' submissions and decides the matter without oral argument under Local Civil Rule 78.1. For the reasons below, the Court grants Plaintiff's Motion.
The Court issued an Order to Show Cause as to why it has diversity jurisdiction in this matter. (ECF No. 37.) NASIC responded and alleged the members of the limited liability companies. (ECF No. 38.) At this juncture, the Court is satisfied that it has jurisdiction to adjudicate this matter.
This matter arises out of an indemnity agreement between NASIC and Defendants. (See generally Compl., ECF No. 1.) NASIC, an insurance company, issues performance and payment surety bonds to contractors to secure their performance on construction projects. (Pl.'s Statement of Undisputed Material Facts (“PSUMF”) ¶ 1-2, ECF No. 24-6.) Defendants are limited liability companies and their individual members, the Stavolas. (Compl. ¶¶ 2-7.) NASIC issued performance and payment bonds to Cardinal, as the principal contractor in a connection with a construction project known as Rehabilitate Runway 6-24 Ocean County Airport, Berkley . Township, New Jersey (the “Project”). (PSUMF ¶ 2.) Ocean County is the obligee on those bonds. (Id.-, Defs.' Supplemental Statement of Disputed Material Facts (“DSSDMF”) ¶ 1, ECF No. 29-1.) In exchange for the bonds, Cardinal, Red Lion, Quarry Master, and the Stavolas each executed a General Agreement of Indemnity on August 2, 2013 in favor of NASIC. (PSUMF ¶ 3.) A few years later, Cardinal Marine executed an addendum, incorporating the August 2, 2013 General Agreement of Indemnity, resulting in Defendants agreeing to its terms. (Id. ¶ 4.) One such term required Defendants to indemnify NASIC “against any and all Loss,” as it is defined in the Indemnity Agreement. (Seifert Aff. Ex. 2, at ¶ 2, ECF No. 24-2.)
Collectively, the General Agreement of Indemnity and the addendum are referred to hereafter as the “Indemnity Agreement.”
On October 29,2019, by letter, Ocean County notified NASIC and Cardinal that it intended to terminate Cardinal for cause. (PSUMF ¶ 12; DSSDMF ¶ 5.) As a result of Cardinal's termination, NASIC notified Ocean County that it intended to complete the Project as required under the terms of the performance bond and further informed Ocean County that it would hire C.J. Hesse, Inc. (“Hesse”) to complete the work. (PSUMF ¶¶ 13-14.) Hesse completed the work and submitted invoices to NASIC. (Id. ¶¶ 14-20.) In turn, NASIC notified Defendants of the costs that they would be responsible for because of Hesse's completion of the Project. (Id.}
With Cardinal terminated, NASIC also received remaining claims from third-party subcontractors for payment for completed work that Cardinal had not yet paid for in the amounts of $395,315.62, $23,350.00, and $3,075.00. (Id. ¶¶ 28, 31, 34.) According to NASIC, it investigated those claims and settled them for $395,315.54, $15,000.00, and $3,075.00, respectively. (Id. ¶¶ 29, 32, 35.) NASIC notified Defendants of those payments and reminded them that they were responsible to indemnify NASIC. (Id. ¶¶ 30, 33.) As of the filing of the instant Motion, NASIC also received invoices in the amounts of $12,334.00 and $32,277.06 that are under investigation and have not yet been paid, but NASIC claims Defendants bear responsibility for any future payments on those claims under the Indemnity Agreement. (Id. ¶¶ 37-38.) In total, NASIC incurred $414,943.47 in losses on the payment surety bond. (Id. ¶ 39)
On November 24, 2020, NASIC filed this action. (See generally Compl.) The Complaint alleges causes of action for Indemnification (Counts I and II), Exoneration (Counts III), Subrogation (Count IV), and Quia Timet (Count V). The parties quickly proceeded to discovery and stipulated to completing fact discovery by November 19, 2021. (ECF No. 19.) After an informal review of the proposed Motion and further consideration of the parties' positions, however, the Honorable Tonianne J. Bongiovanni, U.S.M.J., permitted NASIC to file a motion for summary judgment to enforce the terms of the Indemnity Agreement before the November 19, 2021 discovery deadline. (See ECF No. 23; Licker Aff. ¶¶ 7, 17, ECF No. 24-3.)
II. LEGAL STANDARD
Pursuant to Rule 56(a) of the Federal Rules of Civil Procedure, “[a] party may move for summary judgment, identifying each claim or defense-or the part of each claim or defense-on which summary judgment is sought.” Fed.R.Civ.P. 56(a). Summary judgment is appropriate where “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Id. A dispute is genuine if there is sufficient evidentiary support such that “a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,248 (1986). A fact is material if it can “affect the outcome of the suit under governing law.” Kaucher v. Cnty. of Bucks, 455 F.3d 418, 423 (3d Cir. 2006) (citing Anderson, 477 U.S. at 248). The party moving for summary judgment has the initial burden of proving an absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the non-moving party bears the burden of proof at trial, the movant may discharge its burden by pointing to an absence of evidence necessary to support the non-movant's claim. Id. at 325. Alternatively, a moving party may submit affirmative evidence that negates a material element of the non-moving party's claim. Id. If the movant brings affirmative evidence or makes a showing that the non-movant lacks evidence essential to its claim, the burden shifts to the nonmoving party to “set forth specific facts showing that there is a genuine [dispute] for trial.” Fed.R.Civ.P. 56(e); Celotex, 477 U.S. at 324. The burden of persuasion, however, rests on the nonmoving party to establish each element necessary to succeed on the claims on which it bears the burden of proof at trial. Id. at 322.
To decide whether a genuine dispute of material fact exists, the Court must consider all facts, drawing all reasonable inferences in a light most favorable to the non-moving party. Kaucher, 455 F.3d at 423 (citing Nicini v. Morra, 212 F.3d 798, 806 (3d Cir. 2000)). On a motion for summary judgment, “the judge's function is not... to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine [dispute] for trial.” Anderson, 477 U.S. at 249. Absent a genuine dispute for trial, summary judgment as a matter of law is proper. Id. at 249-50.
III. DISCUSSION
A. NASIC is Entitled to Indemnification Under the Indemnity Agreement
NASIC moves for summary judgment because it contends that it is entitled to indemnification based on the Indemnity Agreement. (See generally Pl.'s Moving Br., ECF No. 24-5.) Because Ocean County terminated Cardinal from the Project, but NASIC was still responsible for completing the Project, NASIC contends it is entitled to decide whether to pay a claim and to determine the amount of that payment. (Id.) Several facts underlying this Motion are not in dispute. For example, Defendants do not oppose NASIC's contention that the Indemnity Agreement covers NASIC's present claims. Rather, Defendants contend that NASIC is not entitled to summary judgment because a genuine dispute of material fact remains because it asserts that NASIC “engaged in bad-faith in discharging its obligations under the Bonds” and “now wrongly seeks to recover from Defendants.” (Defs.' Opp'n Br. 5, ECF No. 29.) At bottom, Defendants argue that NASIC cannot execute its rights under the Indemnity Agreement because it violated the covenant of good faith and fair dealing. (Id. at 5-8.)
As a preliminary matter, in New Jersey, indemnity agreements are “interpreted in accordance with general principles of contract law.” Guarantee Co. of N. Am. USA v. SBN Enters., Inc., No. 09-5399, 2011 WL 3205318, at *2 (D.N.J. July 27, 2011) (citing IFC, Interconsult, AG v. Safeguard Int'l Partners, LLC, 438 F.3d 298, 317 (3d Cir. 2006)). Where the terms of an indemnity agreement are clear, courts must enforce the plain language of the agreement. See Id. Accordingly, “summary resolution of indemnity disputes with unambiguous contractual provisions is appropriate.” Centennial Ins. Co. v. Horizon Contracting Co., No. 05-3917, 2008 WL 4791657, at *6 (D.N.J. Oct. 31,2008). With that standard in mind, the Court turns its attention to the Indemnity Agreement at issue.
The Indemnity Agreement provides as follows:
The Indemnitors shall exonerate, hold harmless and indemnify the Surety from and against any and all Loss. For the purpose of this Agreement, Loss means any liability, loss, costs, damages, attorneys' fees, consultants' fees, and other expenses, including interest, which the Surety may sustain or incur by reason of, or in consequence of, the execution of the Bonds (or any renewals, . continuations or extensions). Loss includes but is not limited to the following: (a) sums paid or liabilities incurred in the settlement of claims; (b) expenses paid or incurred in connection with the investigation of any claims; (c) sums paid in attempting to procure a release from liability; (d) expenses paid or incurred in the prosecution or defense of any suits; (e) any judgments under the Bonds; (f) expenses paid or incurred in enforcing the terms of this Agreement; (g) sums or expenses paid or liabilities incurred in the performance of any Bonded contract or related obligation; and (h) expenses paid in recovering or attempting to recover losses or expenses paid or incurred. Loss expressly includes attorney fees incurred in defending claims, protecting the Surety's interests in any bankruptcy or insolvency proceeding, arranging for the Surety's performance of its obligations, evaluating, settling, and paying claims, seeking recovery under the terms of this Agreement from the Indemnitors, and pursuing the Surety's common law rights to seek recovery of losses from others, including third parties. The Indemnitors agree that their liability shall be construed as the liability of a compensated Surety, as broadly as the liability of the Surety is construed toward its obligee or other claimants.(Seifert Aff. Ex. 2, at ¶ 2.) The Indemnity Agreement further provides as follows:
The Surety shall have the right to decide and determine in its sole discretion whether any claim, liability, suit or judgment made or brought against the Surety or any of the Indemnitors on any Bond shall or shall not be paid . . .the Surety's decision shall be final, binding and conclusive upon the Indemnitors. The Surety shall be entitled to immediate reimbursement for any and all Loss under this Agreement . . . [a]n itemized statement of payment made by the Surety sworn to by an officer of the Surety shall be prima facie evidence of the liability of the Indemnitors to reimburse the Surety.(Id. ¶¶ 9, 13 (emphases added).)
NASIC asserts that it incurred losses, expenses, and additional fees due to its bond obligations to Ocean County. (Pl.'s Moving Br. 5; Seifert Aff. ¶¶ 31, 50, 70.) In support of this contention, NASIC submitted itemized statements detailing its losses that it submits constitute prima facie evidence of Defendants' obligation to indemnify NASIC for its losses. (Pl.'s Moving Br. 5.) As noted above, Defendants concede that NASIC suffered losses because Defendants' contract was terminated by Ocean County. Leisure Pass N. Am., LLC v. Leisure Pass Grp., Ltd., No. 12-03375, 2013 WL 4517841, at *4 (D.N.J. Aug. 26, 2013) (noting that a party that fails to contest an argument waives its opposition to it).
These losses include $414,943.47 in payment bond losses, $240,955.54 in performance bond losses and $87,540.04 in attorney and consulting fees. NASIC has received $140,764.08 from Ocean County, which it agrees reduces Defendants' indemnification obligations under the Indemnity Agreement. These losses do not include the $44,611.06 in additional claims that NASIC is currently investigating.
Having reviewed the parties' Indemnity Agreement and the summary judgment briefing in this matter, the Court first concludes that the unambiguous language of the Indemnity Agreement obligates Defendants to indemnify NASIC from and against any “liability, loss, costs, damages, attorneys' fees, consultants' fees, and other expenses, including interest” in connection with performing their bond obligations. (Seifert Aff. Ex. 2, at ¶ 2.) After all, it is undisputed that NASIC incurred losses and expenses consistent with its bond obligations, including amounts paid to settle the bond claims and consulting and attorneys' fees, and other incidental costs. (Id. ¶¶ 41-57.) Thus, according to the plain language of the Indemnity Agreement and the undisputed facts of this case, Defendants are liable to NASIC for its losses and expenses. E.g. Guarantee Co., 2011 WL 3205318, at *3(“[T]he clear and unambiguous language of the Indemnity Agreement obligates the Indemnitors to indemnify [Plaintiff] from losses, costs, and expenses incurred in connection with the bonds issued by [Plaintiff]).
That does not end this Court's inquiry, however, since Defendants contend that NASIC engaged in bad faith in exercising its rights under the Indemnity Agreement. Relevant here, in New Jersey, all contracts contain an implied covenant of good faith and fair dealing. See Naik v. 7-Eleven, Inc., No. 13-4578, 2014 WL 3844792, at *12 (D.N.J. Aug. 5, 2014). “A defendant may be liable for a breach of the covenant of good faith and fair dealing even if it does not ‘violat[e] an express term of a contract.'” Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 864 A.2d 387, 389 (N.J. 2005) (citing Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 588 (N.J. 1997)). The covenant “calls for parties to a contract to refrain from doing ‘anything which will have the effect of destroying or injuring the right of the other party to receive' the benefits of the contract.” Id. (quoting Palisades Properties, Inc. v. Brunetti, 207 A.2d 522, 531 (N.J. 1965)). Said differently, “a contract. . . would be breached by a failure to perform in good faith if a party uses its discretion ... in a way that intentionally subjects the other party to a risk beyond the normal business risks that the parties could have contemplated at the time of contract formation.” Seidenberg v. Summit Bank, 791 A.2d 1068,1072 (N.J.Super.Ct.App.Div. 2002) (quoting Wilson v. Amerada Hess Corp., 773 A.2d 1121, 1131 (N.J. 2001)).
To establish a breach of this covenant, Defendants must demonstrate that their “reasonable expectations [were] destroyed when [NASIC] act[ed] with ill motives and without any legitimate purpose.” Brunswick Hills Racquet Club, Inc., 864 A.2d at 387. To show that NASIC breached this covenant, Defendants “must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.” Id. at 396 (quoting 23 Williston on Contracts § 63:22, at 513-14 (4th ed. 2002)). “Proof of ‘bad motive or intention' is vital to an action for breach of the covenant.” Id. (emphasis added) (quoting Wilson, 773 A.2d at 1130). “[B]ad faith means not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity.” Mervilus v. Union Cnty., No. 14-7470, 2021 WL 4963293, at *6 (D.N.J. Oct. 26, 2021) (citations omitted). Nor is a lack of diligence or even the existence of negligence equivalent of bad faith. See id.
The Court concludes that Defendants have not raised a genuine dispute of material fact that NASIC breached the covenant of good faith and fair dealing. Defendants provide only the following examples that they claim are evidence of NASIC's bad faith conduct:
• Initially indicating in August 2019 that there was “very little work left to be done”, which was a “total of $100k”, and, thereafter, in September 2019, indicating that NASIC's obligations under the performance bond were not triggered. (DSSDMF ¶¶ 3, 10.)
• Engaging Hesse via a completion contract in the amount of $180,000, as of November 5, 2019 (the “Completion Contract”), notwithstanding that the Ocean County had not authorized NASIC's takeover of the Project, which did not occur until November 15, 2019, at the earliest, when NASIC submitted a proposed takeover letter (the “Takeover Letter”). (Id. ¶ 11.)
• Engaging Hesse via the Completion Contact in the amount of $180,000, as of November 5, 2019, notwithstanding that the Ocean County had indicated that the cost to complete the work was $146,210.09. (Id. ¶ 6.)
• Engaging Hesse via the Completion Contract in the amount of $180,000, as of November 5, 2019, notwithstanding that NASIC's consultant agreed and acknowledged that Hesse's completion bid proposal was grossly overstated. (Id. ¶ 12.)' .
• Accepting Hesse's completion bid proposal which included mobilization at 44% of the total cost, notwithstanding that the Project's specifications only permitted mobilization at a maximum rate of 4% of the total cost. (Id.}
• Providing in the Takeover Letter dated November 15, 2019 that the Contract balance was $169,125, despite the Ocean County having indicated days earlier on November 5, 2019, that the amount remaining on the Contract was $146,210.09. (Id. ¶ 10.)
• Engaging Hesse for the landscaping and related work despite the lack of execution of a change order, which was required pursuant to the Completion Contract. (Id. ¶ 14.)
• Initially seeking pre-discovery summary judgment in the amount of at least $697,738.91, and until August 25, 2021, failing to account for the funds in the amount of $140,764.08 received from the County for the Completion Work, all of which funds are a set-off to NASIC's purported Performance Bond losses.(Id. ¶ 8; see also Defs.' Opp'n Br. 7.)
None of Defendants' allegations, however, raise a genuine dispute of material fact that NASIC acted in bad faith. The closest Defendants come to alleging bad faith on the part of NASIC is that NASIC “fail[ed] to account for the funds in the amount of $140,764.08 received from [Ocean] County.” (Defs.' Opp'n Br. 7.) Although Defendants attempt to assert that NASIC waited months before disclosing to the Court that it received reimbursement from Ocean County that would reduce Defendants' liability, this argument fails as the affidavit submitted by NASIC clearly demonstrates that NASIC did not receive the funds until August 2021 and thereafter, promptly informed the Court, and withdrew its request for those funds prior filing for summary judgment. (See Seifert Aff. ¶ 53.) Indeed, Defendants' briefing concedes this point through demonstrating their version of the timeline of relevant events. (See Defs.' Opp'n Br. 2 (“Sometime in July or early-August 2021, [NASIC] actually received the recovery from [Ocean County].”)) NASIC's timely disclosure does not suggest bad faith. Furthermore, Defendants' allegations that NASIC engaged Hesse to complete the project just a few days before it should have and that NASIC overpaid for certain work also fails to rise to the level of bad faith. Allied World Ins. Co. v. Perdomo Indus., LLC, No. 17-3027, 2018 WL 4623160, at *6 (E.D. Pa. Sept. 25, 2018) (“To show ‘bad faith', [defendants] must show ‘improper motive' or ‘dishonest purpose.'''(citing Mountbatten Sur. Co. v. Jenkins, No. 02-8421, 2004 WL 2297405, at *5 (E.D. Pa Oct. 13, 2004)).
In an attempt to avoid summary judgment against them, Defendants assert that additional discovery is needed to verify Ocean County's payment to NASIC. (Defs.' Opp'n Br. 8-10.) The Court disagrees. First, Defendants concede that NASIC provided e-mail correspondence between NASIC and Ocean County concerning the payment. (Id. at 9.) Second, Defendants' assertion that additional responsive e-mail communications exist is asserted without any basis. Indeed, the Court gleans no support for Defendants' conjecture that more e-mail correspondence between NASIC and Ocean County is “very likely.” (Id.) Third, Defendants were already granted the opportunity to engage in discovery. If Defendants believe that NASIC withheld certain discovery, they should have brought an appropriate motion before the Court during the discovery period.
In conclusion, the Court finds that there is no genuine dispute of material fact on whether Defendants are liable for NASIC's losses under the Indemnity Agreement.
B. NASIC is Entitled to Attorney and Consulting Fees Under the Indemnity Agreement
Next, the Court considers whether NASIC is entitled to attorney and consulting fees. Defendants argue that the Court should reduce NASIC's requested attorney's fees in the amount of $63,207.57. (Defs. Opp'n Br. 10-11.) Defendants argue that because $24,605 of those fees were incurred primarily in relation to informal motion procedures before the Magistrate Judge, the Court should disregard those fees because the process was “a substantial waste of everyone's time.” (Id. at 11.) In response, NASIC argues that it has established its right to recovery under the plain language of the Indemnity Agreement by providing an itemized list of expenses and Defendants have not rebutted that right simply by arguing that they did not find the informal motion procedure fruitful. (Pl.'s Reply Br. 8.)
The U.S. Court of Appeals for the Third Circuit instructs that when an indemnity agreement includes a “prima facie evidence” clause, the burden shifts to the indemnitor to “prov[e] that the • costs incurred were not recoverable.” Fallon Elec. Co. v. Cincinnati Ins. Co., 121 F.3d 125, 129 (3d Cir. 1997) (applying Pennsylvania law). To decide whether the indemnitor has met that burden, courts should look to “the precise language used in the agreement.” Id. Although the Third Circuit set forth this standard under Pennsylvania law, courts in this District have likewise applied this reasoning. See Centennial, 2008 WL 4791657, at *9 (“Courts have long upheld prima facie evidence clauses and shifted the burden to the non-movant to show that a rational factfinder could determine that liability has not attached.”); Guarantee Co., 2011 WL 3205318, at *3 (noting that a prima facie evidence clause is “valid and enforceable” and relying on an itemized statement in an affidavit to grant an unopposed partial summary judgment motion).
NASIC is entitled to the full amount of its attorney's fees. The Indemnity Agreement plainly provides that NASIC's losses includes attorney and consultant fees. (Seifert Aff. ¶ 11; Seifert Aff. Ex. 2, at ¶2.) The Indemnity Agreement further affords NASIC the privilege that “[a]n itemized statement of payment” is “prima facie evidence of the liability of [Defendants] to reimburse the [NASIC].” (Seifert Aff. ¶l3; Seifert Aff. Ex. 2, at¶ 9.) Although Defendants contend that the informal motion practice was unnecessary, simply because the Magistrate Judge's review did not pan out in Defendants' favor does not transform the decision into an unreasonable one or negate the clear terms of the Indemnity Agreement. If anything, by engaging in informal motion practice, the Magistrate Judge efficiently managed this matter to avoid further unnecessary discovery expenses and future motion practice.
C. NASIC is Entitled to Collateral from Defendants Under the Terms of the Indemnity Agreement
Finally, the Court addresses whether Defendants must put up collateral to secure NASIC against future losses under the Indemnity Agreement. NASIC seeks a deposit of $72,767.06 for collateral security, which includes $44,6111.06 allegedly “unresolved bond claims” and future legal and consulting fees. (Pl.'s Moving Br. 12.) Defendants appear to consent regarding posting collateral for the Eastern Construction & Electric, Inc. claim. (Defs.' Opp'n Br. 11-12.) Defendants, however, argue that the Court should not require them to post collateral for the claim from Crisdel Group, Inc. (“Crisdel”) because its work was unworkmanlike. Id.
Collateral for surety bonds is distinguishable from an award of indemnification; collateral, based on reserves set up relating to certain bonds, is intended to protect the surety from future liability and anticipated losses rather than claims that have already been asserted. Guarantee Co., 2011 WL 3205318, at *4.' As such, specific performance is appropriate in cases where such collateral has been demanded.
The Court concludes that NASIC is entitled to its full request for an award of collateral. Whether or not Crisdel is entitled to payment is not before this Court nor a valid reason to negate the plain terms of the Indemnity Agreement requiring specific performance. (See Seifert Aff. Ex. 2, at ¶ 3 (requiring Defendants to “immediately deposit with the Surety a sum of money as collateral security on the Bonds .... equal to the liquidated amount stated in any claim or demand plus the amount that the Surety deems sufficient to cover the Surety's estimate of the costs and expenses to defend, investigate and adjust the claim or demand.”). With regard to the additional legal and consulting fees, the Indemnity Agreement provides NASIC the discretion to determine the amount of collateral it deems “sufficient to cover the Surety's estimate of the costs and expenses to defend, investigate and adjust the claim or demand.” (Seifert Aff. Ex. 2, at ¶ 3.)
IV. CONCLUSION
For the above reasons, the Court grants NASIC's Motion. The Court will enter an Order consistent with this Memorandum Opinion