Opinion
Case No. 23-cv-01079
2024-01-05
RLI INSURANCE COMPANY, Plaintiff, v. Terry BRIGGS, Shawna Briggs, Briggs Brothers Enterprises Corporation, a Pennsylvania Corporation, Briggs Brothers Enterprises Corporation, a Texas Corporation, Briggs Brothers Enterprises Corporation, a Louisiana Corporation, and Briggs Brothers Enterprises Corporation, a Georgia Corporation, Defendants.
Daniel T. Graham, Timothy Robert Herman, Clark Hill PLC, Chicago, IL, Emory Grissom Allen, Christopher Richard Ward, Clark Hill, Frisco, TX, for Plaintiff. David B. Mueller, Cassidy & Mueller, Peoria, IL, for Defendants.
Daniel T. Graham, Timothy Robert Herman, Clark Hill PLC, Chicago, IL, Emory Grissom Allen, Christopher Richard Ward, Clark Hill, Frisco, TX, for Plaintiff.
David B. Mueller, Cassidy & Mueller, Peoria, IL, for Defendants.
ORDER
Michael M. Mihm, United States District Judge
This matter is before the Court on Defendants Terry Briggs, Shawna Briggs, Briggs Brothers Enterprises Corporation, a Pennsylvania Corporation, Briggs Brothers Enterprises Corporation, a Texas Corporation, Briggs Brothers Enterprises Corporation, a Louisiana Corporation, and Briggs Brothers Enterprises Corporation, a Georgia Corporation's ("Defendants") Motion for Change of Venue ("Motion to Transfer Venue") and Motion to Dismiss the First Amended Complaint ("Motion to Dismiss," and together with the Motion to Transfer Venue, the "Motions"). ECF Nos. 18, 24. For the reasons stated herein, Defendants' Motions are DENIED.
BACKGROUND
The following facts are taken from Plaintiff's Complaint, which the Court accepts as true for the purposes of a motion to dismiss. See Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 639 (7th Cir. 2015).
I. Factual Background
RLI Insurance Corporation ("RLI" or "Plaintiff") is headquartered in Peoria, Illinois. ECF No. 20 at ¶ 9. At issue in this case are the terms of an indemnity agreement (the "Indemnity Agreement"), dated December 1, 2019, between RLI and Briggs Brothers Enterprises Corporation ("Briggs," as defined further below). ECF No. 20-1. Pursuant to the Indemnity Agreement, RLI agreed to issue certain surety bonds on behalf of the "Indemnitors" (as defined in the Indemnity Agreement), and in return, the Indemnitors agreed to exonerate, indemnify, and hold RLI harmless from any losses. ECF No. 20-1 at ¶ 3. The surety bonds included payment bonds, performance bonds, and bid bonds (the "Bonds") that allowed Briggs to obtain and perform construction and development projects (the "Projects") across various states, including Texas, Louisiana, Georgia, South Carolina, Kansas, and Alabama. ECF No. 20 at ¶ 17.
RLI alleges that beginning in March of 2022, and continuing to date, it received a
number of claims, as surety, against the Bonds. ECF No. 20 at ¶ 18. Specifically, RLI alleges that it received $7,000,000 in payment bond claims due to a failure of Briggs or one of its subcontractors to make payments for labor, equipment, or materials required on certain bonded Projects. ECF No. 20 at ¶ 18. RLI also alleges that it received performance and bid bond claims, which demanded RLI to complete Projects (or pay a contractor to do so) in various states. ECF No. ¶¶ 19-28.
RLI contends that these claims—namely claims for nonpayment, notice of Project defaults, notices to cure, and notices of breach or abandonment of Projects—constituted "Defaults" under the Indemnity Agreement. ECF No. 20 at ¶¶ 28-39. To remedy these Defaults, RLI alleges that it issued formal demands against Briggs, including a demand to access Briggs' books and records on January 12, 2023, a demand for Briggs to post $2,000,000 in collateral security on February 2, 2023, and an indemnification demand for $1,508,230.06 on April 5, 2023. ECF No. 20 at ¶¶ 31-39. To date, RLI claims it has lost $1,962,755.00 due to Briggs' nonperformance. ECF No. 20 at ¶ 38 (listing amounts).
Briggs disputed its underlying liability and RLI's actions following its receipt of surety claims against the Bonds. Briggs filed several lawsuits in federal courts across the country, including the Middle District of Louisiana, the Southern District of Texas, the Northern District of Georgia, and the District of Columbia (the "Tort Litigation"), either slightly before or after RLI's filing of this action. See ECF No. 31 at 3 n.3. In each case, Briggs asserts claims for tortious interference with a business relationship, deceptive trade practices, breach of fiduciary duty, and negligence under each jurisdiction's applicable state laws.
Plaintiff's Memorandum of Law in Response to the Motion to Dismiss provides the case captions for each of the Tort Litigation cases: Briggs Brothers Enter. Corp. v. RLI Ins. Co., Case No. 23-cv-00132 (M.D. La. Feb. 23, 2023); Briggs Brothers Enter. Corp. v. RLI Ins. Co., Case No. 23-cv-00724 (S.D. Tex. Feb. 27, 2023); Briggs Brothers Enter. Corp. v. RLI Ins. Co., Case No. 23-cv-01017 (N.D. Ga. Mar. 9, 2023); Briggs Brothers Enter. Corp. v. RLI Ins. Co., Case No. 23-cv-00364 (D.D.C. Feb. 8, 2023). See ECF No. 31 at 3 n.3. Plaintiff's Response further provides that the D.C. case is closed, Id.
II. Procedural Background
RLI brought suit in this Court on February 21, 2023, against Briggs Brothers Enterprise Corporation, a Pennsylvania Corporation ("Briggs Pennsylvania"), Briggs Brothers Enterprise Corporation, a Texas Corporation ("Briggs Texas"), Briggs Brothers Enterprise Corporation, a Louisiana Corporation ("Briggs Louisiana"), and Briggs Brothers Enterprise Corporation, a Georgia Corporation ("Briggs Georgia," and collectively, "Briggs" or the "Briggs Entities"). ECF No. 20 at ¶¶ 4-7. RLI also named Terry Briggs, the President and co-owner of Briggs, and Shawna Briggs as additional Defendants in this action. Id. at ¶¶ 2, 3.
Defendants responded to Plaintiff's initial complaint, and on June 30, 2023, Plaintiff filed the operative amended complaint (the "Amended Complaint"). ECF No. 20. The Amended Complaint asserts claims for breach of the Indemnity Agreement, breach of fiduciary duty, breach of common law indemnity obligations, common law exoneration, and common law quia timet claims. Id. Plaintiff seeks to enforce, among other things, paragraph 3 of the Indemnity Agreement (defining "Loss" to RLI as any costs and expenses related to the Bonds), paragraph 4 of the Indemnity Agreement (requiring Indemnitors to deposit collateral upon RLI suffering a "Loss"), paragraph 7 (imposing fiduciary
duties on the Indemnitors to hold contract funds in trust for the benefit of RLI), paragraph 9 (defining certain "Default" events), and paragraph 13 (granting RLI the right to review the Indemnitors' books and records).
RLI seeks relief in this Court pursuant to a forum-selection clause in paragraph 27 of the Indemnity Agreement. ECF No. 20 at ¶ 9; ECF No. 20-1 at ¶ 27. That paragraph provides:
Choice of Law and Venue. This Agreement shall be governed and construed in accordance with the laws of the State of Illinois. Each party hereto irrevocably submits to the exclusive jurisdiction of the Courts of the State of Illinois, United States District Court Central District of Illinois with respect to any matter arising hereunder or related hereto.
ECF No. 20-1 at ¶ 27 (the "Forum-Selection Clause"). RLI also moved to consolidate litigation in this Court through various motions to transfer venue in the pending Tort Litigation courts.
Defendants, however, disagree with enforcement of the Forum-Selection Clause and filed the Motion to Transfer Venue, seeking to transfer this action to the separately pending Tort Litigation courts. ECF No. 18. Defendants argue that litigation concerning the Indemnity Agreement should be brought as counterclaims in the Tort Litigation jurisdiction where each specific Briggs Entity is located. ECF Nos. 18 at 3-5, 38. Alternatively, Defendants request that the Court dismiss Plaintiff's claims pursuant to Federal Rules of Civil Procedure 10(b) and 12(b)(6). ECF No. 24. Plaintiff filed responses in opposition. ECF Nos. 22, 31.
On December 12, 2023, the Court heard oral argument on the Motion to Transfer Venue and Motion to Dismiss. The matter is fully briefed, and this Order follows.
DISCUSSION
I. Motion to Transfer Venue
Pursuant to 28 U.S.C. § 1391(b), a civil action may be brought in three places: (1) the district in which any defendant resides; (2) the district "in which a substantial part of the events or omissions giving rise to the claim occurred;" or (3) "if there is no district in which an action may otherwise be brought ... any judicial district in which any defendant is subject to the court's personal jurisdiction with respect to such action." While a forum-selection clause has no bearing on whether a case satisfies the factors listed in § 1391, "[c]ourts throughout the country ... have routinely held ... that parties can waive objections to venue by agreeing to a forum-selection clause." MB Fin., Inc. v. Hart, No. 17 C 8866, 2018 WL 3920715, at *2 (N.D. Ill. Aug. 16, 2018) (collecting cases); Store Master Funding III, LLC v. R. Tequila Acquisition, LLC, No. 3:20-CV-1449-B, 2020 WL 6135720, at *2 (N.D. Tex. Oct. 19, 2020) (noting that "parties may consent to a venue that is not expressly authorized by statute").
Section 1404(a), which serves as the mechanism for enforcement of a forum-selection clause, provides that "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented." Atl. Marine Const. Co. v. U.S. Dist. Ct. for W. Dist. Tex., 571 U.S. 49, 52, 134 S.Ct. 568, 187 L.Ed.2d 487 (2013) (citing 28 U.S.C. § 1404(a)). Defendants argue that this action should be transferred in the interest of justice and judicial economy to the pending Tort Litigation jurisdictions. Plaintiff, however, seeks to separately litigate issues related to the Indemnity Agreement in this Court, pursuant to the
Forum-Selection Clause. The parties presented a number of arguments for their respective positions, which the Court will address below.
A. Enforcement of Forum-Selection Clause Against the Briggs Entities
Before deciding whether this action is better suited in the pending Tort Litigation venues, the Court must first determine whether the Forum-Selection Clause is valid and enforceable against the Briggs Entities. See Paper Exp., Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 755 (7th Cir. 1992). "Indemnity agreements are contracts and, as such, are to be construed like any other contract." See Universal Bonding Ins. Co. v. Esko & Young, Inc., No. 90C02995, 1991 WL 30049, at *1 (N.D. Ill. Feb. 28, 1991) (internal citations omitted). In interpreting a contract, including a forum-selection clause, a court applies the choice of law specified in the contract. See Abbott Laboratories v. Takeda Pharm. Co., Ltd., 476 F.3d 421, 423 (7th Cir. 2007) (analyzing the contracts choice-of-law provision); Campbell v. Bayerische Hypo-und Vereinsbank AG, No. 05 C 6930, 2006 WL 8460651, at *2-3 (N.D. Ill. June 13, 2006) (reasoning that determining whether to enforce a forum-selection clause invokes a choice-of-law analysis).
Because the Indemnity Agreement selects Illinois law as the governing law, whether the Forum-Selection Clause is valid must be determined under principles of Illinois contract law. ECF No. 20-1 at ¶ 27 (selecting Illinois law). Illinois contract law provides that "[a] forum selection clause in a contract is prima facie valid and should be enforced unless the opposing party shows that enforcement would be unreasonable under the circumstances." Jackson v. Payday Fin., LLC, 764 F.3d 765, 774-75 (7th Cir. 2014) (citing IFC Credit Corp. v. Rieker Shoe Corp., 378 Ill.App.3d 77, 317 Ill. Dec. 214, 881 N.E.2d 382, 389 (2007)). "This is true, however, only of 'agreement[s] reached through arm's-length negotiation between experienced and sophisticated business people'; 'a forum selection clause contained in boilerplate language indicates unequal bargaining power, and the significance of the provision is greatly reduced." Id.
Here, the parties are sophisticated business entities and individuals, and the Court has no reason to infer from the pleadings that the Forum-Selection Clause was not negotiated at arms' length. Instead, Defendants dispute which entities the Forum-Selection Clause may be enforced against. ECF No. 18 at ¶ 11. Specifically, Defendants submit that the Forum-Selection Clause is enforceable against only Briggs Pennsylvania, Terry Briggs, and Shawna Briggs because they are the only parties who executed signature pages to the Indemnity Agreement. See id.; see also ECF No. 19 at 5. Defendants argue that because Briggs Georgia, Briggs Louisiana, and Briggs Texas did not attach signature pages, they are not parties to the Indemnity Agreement, and therefore, are not bound to the Forum-Selection Clause. Id. Plaintiff responds that the Indemnity Agreement binds all Briggs Entities due to its terms and definitions, in addition to the issuance of Bonds to those entities. ECF No. 22 at 19-20.
The Indemnity Agreements begins with the preamble: "We, the undersigned, individually for and on behalf of all other Indemnitors, enter into this Agreement of Indemnity in favor of the Company." ECF No. 20-1 (emphasis added). The Indemnity Agreement then sets forth several key definitions:
"Principal" means the person, firm, or entity Identified as Indemnitor(s) and its successors, parent companies, sibling companies, affiliated companies ... or other legal entities whether now existing or hereafter acquired or created. If Principal changes its name or corporate structure or form, each and every part of this Agreement shall bind the newly named or formed Principal in every respect as if such newly named or formed Principal signed this Agreement.
"Indemnitors" means the Principal and one or more of the persons, firms, or entities signing this Agreement below, and their respective successors, assigns, co-venturers, joint venture partners, parents, subsidiaries, sibling companies, affiliates and divisions, whether now existing or hereafter acquired or created. Also, Indemnitors shall include any and all entity(s) and/or individual(s) that obtain Bonds from Company at the request of any of the aforementioned parties, or any combination of the above.
"Bond" means any and all bonds, contract of suretyship, guarantee, obligation, undertaking, writing or commitment, and any modifications or amendments thereto, issued or undertaken by the Company ... or which Company has executed or procured for or on behalf of: (a) any one or more of the Indemnitors (without regard to whether any such Indemnitor signed this Agreement), their respective present or future direct or indirect parent companies, subsidiaries and affiliates and all of their respective successors and assigns; (b) any present or future joint venture, co-venture, consortium, partnership, trust, association, limited liability company, or other legal entity in which one or more of the persons or entities identified in sub-paragraph (a) above have an interest; (c) any other person or entity at the request of any of the Indemnitors; or (d) any combination of the above, whether executed or procured before, on, or after the execution of this Agreement.
ECF No. 20-1 at 1 (definitions).
Accepting the Plaintiff's allegations as true, the Indemnity Agreement's terms appear broad enough to encompass Briggs Entities that did not execute signature pages to the Indemnity Agreement. The Preamble broadly provides that the Indemnity Agreement is signed on behalf of all "Indemnitors." Id. "Indemnitor," in turn, is broadly defined to include a "Principal," and each subsidiary, affiliate, and sibling company of a Principal, in addition to any entity that obtained Bonds from RLI. Id. Based on the facts in the Amended Complaint, each of the Briggs Entities is likely both a "Principal" and "Indemnitor" under the Indemnity Agreement because they obtained Bonds from RLI. Further, accepting the allegations as true, Terry Briggs had authority to bind each Principal and Indemnitor to the Indemnity Agreement in the Preamble, as the President and owner of the Briggs Entities. Thus, in executing the Indemnity Agreement, Terry Briggs did so on behalf of all Briggs Entities who obtained Bonds from RLI, and therefore, a failure to attach a specific signature page for each Briggs Entity alone does not remove the applicable Briggs Entities from the scope of the Forum-Selection Clause. See, e.g., Cincinnati Ins. Co. v. Ralston Brown, Inc., No. 09 C 6359, 2012 WL 4464449, at *5 (N.D. Ill. Sept. 25, 2012) (noting that a principal and indemnitor's failure to execute an indemnity agreement and bond application did not invalidate the contracts).
Additionally, even if the Briggs Entities are not Principals under the Indemnity Agreement, they appear to fall into the broader catch-all language of "Indemnitors," which extends to each affiliate, subsidiary, and sibling company of Briggs Pennsylvania—the sole signing Briggs entity.
Under the expansive definition of Indemnitors —read in conjunction with the Preamble which binds all Indemnitors— the Briggs Entities are bound to the Indemnity Agreement and its Forum-Selection Clause. See, e.g., Devs. Sur. & Indem. Co. v. Kipling Homes, L.L.C., No. 11 C 4457, 2014 WL 984992, at *3 (N.D. Ill. Mar. 13, 2014) (providing that the entities, who did not sign, were included within the definition of "principal" under an indemnity agreement as subsidiaries and affiliates).
Further, at this stage in the litigation, Plaintiff has pleaded facts sufficient to demonstrate that the Briggs Entities were so closely related to Terry Briggs, Shawna Briggs, and Briggs Pennsylvania, that the Briggs Entities knew (or should have known) they would be bound to the Forum-Selection Clause when they took out Bonds from RLI. See Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209-10 (7th Cir. 1993) (collecting cases). While each Bond is issued pursuant to a separate contract, the Indemnity Agreement appears to constitute an "integral part" of each bond application as the ultimate source of consideration between RLI and Briggs for issuance of the Bonds. See, e.g., Cincinnati Ins. Co., 2012 WL 4464449, at *5. Thus, the Court finds that Plaintiff alleged sufficient facts to demonstrate that the Briggs Entities are bound to the Indemnity Agreement's Forum-Selection Clause.
B. Forum-Selection Clause as Mandatory and Exclusive
Following a determination that the Forum-Selection Clause is valid and enforceable against the Briggs Entities, the Court must decide whether the Forum-Selection Clause makes litigation in this Court mandatory and exclusive. The Seventh Circuit has described a forum-selection clause governing disputes "arising from, concerning or in any way related to" a contract, as "about as broadly worded as could be imagined." See Abbott Labs. v. Takeda Pharm. Co., 476 F.3d 421, 424 (7th Cir. 2007). The Seventh Circuit has further held that "where venue is specified with mandatory or obligatory language, the clause will be enforced; where only jurisdiction is specified, the clause will generally not be enforced unless there is some further language indicating the parties' intent to make venue exclusive." Paper Exp., Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 755 (7th Cir. 1992).
Here, The Forum-Selection Clause is titled "Choice of Law and Venue," and states that "[e]ach party hereto irrevocably submits to the exclusive jurisdiction of the Courts of the State of Illinois, United States District Court Central District of Illinois with respect to any matter arising hereunder or related hereto." ECF No. 20-1 at ¶ 27 (emphasis added). Based on this broad wording, litigation regarding a breach of the Indemnity Agreement falls squarely within the exclusive language used in the Forum-Selection Clause and makes this Court the appropriate venue and jurisdiction for the present action.
C. Atlantic Marine Factors
Next, the Court must consider whether litigation in this Court satisfies the Supreme Court's factors in Atlantic Marine. There, the Supreme Court recognized that ordinarily, a forum-selection clause is "prima facie valid and should be enforced unless enforcement is shown by the resisting party to be 'unreasonable' under the circumstances." Atlantic Marine Const. Co., 571 U.S. at 52, 134 S.Ct. 568. Still, because section 1404(a) is the proper mechanism for enforcement of a forum-selection clause, courts must weigh certain factors and decide whether a transfer would serve "the convenience of parties and witnesses" and promote "the interest of justice," bearing in mind that a valid
forum-selection clause represents the parties' agreement. Id.
This consideration requires a court to adjust its analysis in three ways: (1) the plaintiff's choice of forum merits no weight; (2) a court should not consider private factors because they are waived when a forum-selection clause is validly agreed upon, and instead, a court should consider the public factors only, which will rarely defeat a forum-selection clause; and (3) when a party bound by a forum-selection clause files suit in a different forum, the motion to transfer venue will carry the original venue's choice-of-law rules. Id. The public interest factors include "the administrative difficulties flowing from court congestion; the local interest in having localized controversies decided at home; [and] the interest in having the trial of a diversity case in a forum that is at home with the law." Id. at 62 n.6, 134 S.Ct. 568.
Here, the Forum-Selection Clause is valid and enforceable, and therefore, it constitutes prima facie evidence of the parties' agreement to litigate in this forum. The Court therefore need not consider the private interest factors. Turning to the public interest factors, the first factor does not weigh in favor of transferring venue. Neither party has raised concerns about docket congestion in this Court or in the pending Tort Litigation jurisdictions, and the Court has no reason to assume that any of the proposed jurisdictions have administrative difficulties flowing from court congestion. The second factor also does not weigh in favor of transferring venue, as this case concerns the enforcement of an Indemnity Agreement governed under Illinois law—a task more localized to this Court than the District Courts of Texas, Louisiana, and Georgia. The third factor also favors litigation in this Court because this venue is at home with the applicable contract law. Defendants submit that venue should be transferred to the respective jurisdictions where the underlying torts took place—i.e., of the place of the bonded Projects. ECF No. 18 at ¶¶ 14-15. While trials for the ancillary tort claims may be arguably better left in the currently pending Tort Litigation venues—particularly considering the underlying tort law and public policies of each state—the public interest factors do not favor disturbing the Forum-Selection Clause with respect to claims for breach of the Indemnity Agreement under Illinois law that are presently pending before this Court. Accordingly, the Court finds that Defendants' Motion to Transfer Venue should be denied.
II. Motion to Dismiss
In their Motion to Dismiss, Defendants first argue that Plaintiff must separately state its claims in a manner that identifies the specific bond in default, the defaulting principal, and the legal basis for which Plaintiff seeks recourse pursuant to Federal Rule of Civil Procedure 10(b). ECF No. 30 at 2-3. Defendants also move to dismiss Plaintiff's claims pursuant to Federal Rule of Civil Procedure 12(b)(6) on numerous grounds, including that Plaintiff cannot seek joint and several liability against the Briggs Entities that did not sign the Indemnity Agreement, that Plaintiff fails to adequately plead alter ego theories of liability, that the liabilities are inchoate, that the Indemnity Agreement is illusory, and that enforcement of the Indemnity Agreement violates the Uniform Commercial Code (the "UCC"). ECF No. 24 at 11-15; ECF No. 30 at 3-4. Each argument is addressed below.
A. Liability with Respect to Each Briggs Entity under Rule 10(b)
Defendants first challenge the Amended Complaint as drafted under Federal Rule of Civil Procedure 10(b). Specifically,
Defendants argue that the Plaintiff seeks "identical relief" from each Defendant without specifying differentiating facts that entitle RLI to relief from that specific entity. ECF No. 30 at 2-3. Defendants argue that Plaintiff first must separately state its claims in a manner that identifies the specific bond in default, the defaulting principal, and the legal basis for which Plaintiff seeks recourse pursuant to Rule 10(b). Id.
Rule 10(b) provides that:
A party must state its claims or defenses in numbered paragraphs, each limited as far as practicable to a single set of circumstances. A later pleading may refer by number to a paragraph in an earlier pleading. If doing so would promote clarity, each claim founded on a separate transaction or occurrence—and each defense other than a denial—must be stated in a separate count or defense.
Rule 10(b) therefore requires that if a claim is founded on a separate transaction or occurrence, the claim should be stated in a separate count "'whenever a separation facilitates the clear presentation of the matters set forth.'" Mathes v. Nugent, 411 F. Supp. 968, 972 (N.D. Ill. 1976) (quoting Moore's Federal Practice, ¶ 10.03.). The purpose of Rule 10(b) is to promote the drafting of an understandable complaint that clearly identifies the claims asserted and provides the defendant with fair notice of each claim. See Novotny v. Porzycki, No. 02-CV-8564, 2003 WL 21384638, at *1 (N.D. Ill. June 13, 2003); see also Tompkins v. Cent. Laborers' Pension Fund, No. 09-CV-4004, 2009 WL 3836893, at *3-4 (C.D. Ill. Nov. 16, 2009) (reasoning that a complaint need not separate each legal claim if they stem from the same occurrence, so long "as Defendant can understand the claims that are made against it").
The Amended Complaint at issue is thoroughly drafted and generally understandable. The Amended Complaint identifies the parties and individuals against which the claims are asserted (ECF No. 20 at ¶¶ 2-7), the pertinent terms of the Indemnity Agreement (ECF No. 20 at ¶¶ 13-16), the specific Bonds at issue (ECF No. 20 at ¶ 17), and the events that the Plaintiff considers "Defaults" under the Indemnity Agreement in relation to those Bonds (ECF No. 20 at ¶¶ 29-37). The Amended Complaint further lists each Bond from which it has suffered an alleged "Loss" and provides both the applicable Bond number and the amount of "Loss." ECF No. 20 at ¶ 38. Additionally, the Amended Complaint separately enumerates each legal theory and request for relief.
Based on the foregoing facts, the Court finds that the Amended Complaint satisfies Rule 10(b). The Court is not persuaded that Plaintiff must separately number each legal theory against each individual Briggs Entity under Rule 10, especially here, where Plaintiff asserts its claims based on joint and several liability and/or alter ego theories of liability.
B. Defendant's Rule 12(b)(6) Arguments
As discussed above, Defendants also submit several arguments for dismissal under Federal Rule of Civil Procedure 12(b)(6). Dismissal pursuant to Rule 12(b)(6) is proper if a complaint fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, a complaint must contain sufficient factual matter, which when accepted as true, states a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In resolving Defendants' motion, the Court must accept all
well-pleaded allegations in the Amended Complaint as true and draw all reasonable inferences in Plaintiff's favor. McMillan v. Collection Profls, Inc., 455 F.3d 754, 758 (7th Cir. 2006). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
First, similar to its Rule 10(b) argument, Defendants submit that Plaintiff's claims must be dismissed under Rule 12(b)(6) for failing to identify the obligee to which the Plaintiff is liable and the principal that defaulted on the Bond. See ECF No. 24 at ¶¶ 26-31; ECF No. 30 at 3-4. Yet as the Court stated above, the Amended Complaint identifies the relevant Bonds in Default, provides a Bond number, and asserts liability against all Defendants jointly and severally pursuant to paragraph 4 of the Indemnity Agreement. The Amended Complaint further details each notice it received as surety and the respective Bond and Project related to the notice, before describing the factual basis for each alleged Default.
Additionally, paragraph 4 of the Indemnity Agreement clearly provides that each Indemnitor agreed to hold RLI harmless from all losses—not solely those on account of each Briggs Entity—and that the obligations of each Indemnitor are joint and several. ECF No. 20 at ¶ 14 (emphasis added). As the Court stated above, the term "Indemnitors" is broadly defined to include not only the Principals which took out the Bonds (which each Briggs Entity appears to have done), but also each Principal's affiliates and subsidiaries. ECF No. 20-1. This establishes both a plausible basis to bind the non-executing Briggs Entities to the Indemnity Agreement and supports a claim for joint and several liability. Whether such claims will ultimately succeed as a matter of law is unclear; however, based on the allegations in the Amended Complaint and the plain language of the Indemnity Agreement, the Court finds that the Plaintiff has adequately provided a short and plain statement for relief that survives a motion to dismiss.
Second, Defendants argue that Plaintiff fails to sufficiently plead an alter ego theory of liability. ECF No. 30 at 5-8. To succeed under the alter ego doctrine, a plaintiff must demonstrate two requirements: "First, there must be such a unity of interest and ownership that the separate personalities of the corporation and the dominating ... entity no longer exist;" and "[s]econd, the facts must be such that an adherence to the fiction of separate corporate existence would endorse a fraud or promote injustice.'" Bd. of Trustees of Pipe Fitters Ret. Fund v. George's & Sons, Inc., No.-08-C-2186, 2009 WL 10742109, at *2 (N.D. Ill. May 22, 2009) (citing In re Rehabilitation of Centaur Ins. Co., 238 Ill.App.3d 292, 179 Ill.Dec. 459, 606 N.E.2d 291, 296 (1992)) (internal quotations omitted). Whether a corporation is an alter ego "is essentially a question of fact." Id. (citing Int'l Fin. Servs. Corp. v. Chromas Techs. Can., Inc., 356 F.3d 731, 738 (7th Cir. 2004); Forge Indus. Staffing, Inc. v. De La Fuente, No. 06-C-3848, 2006 WL 2982139, at *10 (N.D. Ill. Oct. 16, 2006) ("[T]he alter ego analysis is fact-intensive and therefore, is inappropriate for resolution on a motion to dismiss.")).
Here, the Plaintiff alleges that each Briggs Entity has the same President, employer identification number (EIN), insurance policies, and financial accounting. ECF No. 20 at ¶ 11. Plaintiff further alleges that the Briggs Entities file
a single tax return and operate using integrated resources and operations to pursue a common business purpose. Id. Plaintiff alleges that recognition of corporate separateness between the Briggs Entities would promote injustice or inequity. Id. While Plaintiff's alleged facts largely track the boilerplate language of the alter ego requirements, the Court finds that Plaintiff alleged sufficient facts, such as common EIN, taxes, insurance, accounting, management, and operations, to support an alter ego theory of liability at the motion to dismiss stage. See, e.g., Deere & Co. v. XAPT Corp., No. 19-cv-04210, 2020 WL 2199607, at *4 (C.D. Ill. May 6, 2020) (finding alter ego claim survived motion to dismiss despite alleging only that a corporation and defendant had the same address and that defendant served as president); George's & Sons, Inc., 2009 WL 10742109, at *2 (finding that plaintiff sufficiently pleaded alter ego theory because it alleged that the two companies shared a single address and phone number, along with shared employees, vehicles, customer lists, and business records). Ultimately, because an alter ego claim is fact-intensive, the question of whether such claims succeed is better suited for summary judgment. See Deere & Co., 2020 WL 2199607 at *4 ("Certainly, the ultimate success or failure of an alter ego claim is better suited for a time later than the amendment of pleadings stage.").
Third, Defendants argue that Plaintiff's Amended Complaint is insufficient because its claims related to the Indemnity Agreement are "inchoate liabilities" that can only be determined after the underlying liability on the Bonds is fixed. ECF No. 24 at 8-9. The Indemnity Agreement, however, provides in several provisions that Plaintiff is entitled to immediate relief as part of its surety relationship. For example, paragraph 3 of the Indemnity Agreement provides that the Indemnitors must indemnify RLI "as soon as liability exists or is asserted against [RLI], whether or not [RLI] shall have made any payment therefor." ECF No. 20-1 at ¶ 3. Paragraph 4 also provides Plaintiff with a right to demand collateral or draw down on posted collateral as soon as RLI is threatened with liability, receives a claim against a Bond, or believes that a liability may incur. Id. ¶ 4. These broad surety protections have generally been supported under Illinois law, which allows for enforcement of an indemnity agreement prior to a determination of liability on the premise that "a surety's right to indemnification from the obligor for cost and expense arises immediately upon the obligee's claim on the underlying subcontract and is independent of the obilgor's liability on the underlying contract." See Cont'l Cas. Co. v. Lipton, No. 91 C 8066, 1993 WL 8763, at *3 (N.D. Ill. Jan. 14, 1993). Thus, the Court does not find at this stage that Plaintiff must wait for Defendants' liability to be determined on the underlying Bonds before pursuing enforcement of the Indemnity Agreement.
Fourth, Defendants argue that Plaintiff's claims fail because they violate the UCC. Defendants first argue that because the Briggs Entities in Texas, Louisiana, and Georgia did not sign the Indemnity Agreement, it cannot create a valid security interest in their collateral and accounts under the UCC, and therefore Paragraphs 4-8 of the Indemnity Agreement are void. ECF No. 24 at ¶¶ 35-40; ECF No. 30 at 17-20 (citing 810 ILCS 5/9-102(a)(2), (12)). Defendants then argue that with respect to the signing Briggs Pennsylvania entity, enforcement of the Indemnity Agreement's security provisions violates the UCC's standards of "good faith" and "commercial reasonableness" and is void as a matter of public policy because its debt acceleration provisions are one-sided and inequitable. ECF No. 15
at 18 (citing 810 ILCS 5/9-607(a), 810 ILCS 5/9-624, ILCS 5/9-102(a)(43)).
At this stage in the litigation, it is unclear to what extent, if any, the UCC is implicated in the present action. Here, paragraph 4 of the Indemnity Agreement provides the Plaintiff with a collateral right as security for their losses, and paragraph 5 provides that the Indemnitors granted RLI a security interest in accordance with the UCC. ECF No. 20-1 at ¶¶ 4-5. The Amended Complaint seeks to enforce this right by requesting that the Court grant RLI injunctive relief against the Indemnitors by requiring them to deposit cash or collateral in the sum of $4,000,000 and enjoining them from transferring or dissipating such assets. ECF No. 20 at 27-28.
Numerous courts, however, have recognized that Article 9 has no application in the surety context when a surety enforces collateral rights that stem from the doctrine of equitable subrogation and reimbursement, and therefore, do not constitute a financing arrangement within the meaning of Article 9. See, e.g., Gen. Ins. Co. of Am. v. Mezzacappa Bros., 110 F. App'x 183, 184 (2d Cir. 2004) (holding that "a surety's rights in the property of its insured are secured by virtue of equitable subrogation, rather than by virtue of a security interest within the meaning of Article 9 of the Uniform Commercial Code"); First Alabama Bank of Birmingham v. Hartford Acc. & Indem. Co., 430 F. Supp. 907, 910 (N.D. Ala. 1977) (same); Transamerica Ins. Co. v. Barnett Bank of Marion Cnty., N.A., 540 So. 2d 113, 116 (Fla. 1989) (same). Similarly, here Plaintiff seeks to enforce certain reimbursement rights through the posting of collateral from Defendants; however, Plaintiff does not seek to sell or foreclose such collateral, nor is Plaintiff seeking to perfect any interest in such collateral or perform actions that would typically implicate the UCC.
This is not to say that the Indemnity Agreement does not constitute a security agreement, as courts, in some instances, have recognized that an indemnity agreement may constitute a security agreement under the UCC. See, e.g., Markel Ins. Co. v. Origin Bancorp, Inc., No. 1:21-CV-151, 663 F.Supp.3d 670, 682 (N.D. Tex. Mar. 21, 2023) (finding that a general indemnity agreement contained "similar hallmarks of a security agreement" and granted a security interest in various types of collateral). Yet, even if Plaintiff's actions did implicate the UCC through enforcement of paragraph 5 (which provides that RLI is granted a security interest in accordance with the UCC to certain collateral), it is still plausible based on Plaintiff's allegations that Terry Briggs executed the Indemnity Agreement on behalf of all Briggs Entities, as Indemnitors. As discussed in the Court's venue analysis, the Indemnity Agreement's Preamble and expansive definitions of "Principals" and "Indemnitors" appear broad enough to bind all Briggs Entities, even if they did not attach executed signature pages. Whether such execution will succeed as a matter of law as a valid security agreement—to the extent the Amended Complaint implicates UCC principles at all—is a question better left for summary judgment.
The Court is also not persuaded that collateral provisions of the Indemnity Agreement violate the UCC on their face as a matter of public policy, or that the Indemnity Agreement is otherwise illusory, one-sided, or inequitable under the UCC or otherwise. "Indemnity agreements are contracts and, as such, are to be construed like any other contract. In construing indemnity contracts, the primary focus is to give effect to the intention of the parties. This is especially so when the intent of the parties is clear and unambiguous."
Hanover Ins. Co. v. Smith, 182 Ill. App. 3d 793, 131 Ill.Dec. 335, 538 N.E.2d 710 (1989) (internal citations omitted). The Seventh Circuit has recognized that indemnity agreements are "unilateral contracts commonly entered into in favor of sureties by prospective principals and provided to a surety as consideration for issuance of certain bonds." See e.g., Hanover Ins. Co. v. Northern Bldg. Co., 751 F.3d 788, 790 (7th Cir. 2014).
Courts have generally rejected applying "commercial reasonableness" standards under the UCC in the surety context. Travelers Prop. & Cas. Ins. Co. v. Triton Marine Const. Corp., 473 F. Supp. 2d 321, 331 (D. Conn. 2007) ("There is no evidence from which a reasonable jury could conclude that the indemnity agreement operated as a financing statement under Article 9, nor does the standard of commercial reasonableness apply generally to a surety's indemnity agreement."). A surety, however, is still subject to contractual standards of good faith, particularly when settling claims. See Palestine Water Well Serv., Inc. v. Washington Int'l Ins. Co., No. DR: 15-CV-016-AM-CW, 2015 WL 12910046, at *7 (W.D. Tex. Sept. 30, 2015) (noting that "sureties do not owe their principals a common law duty of good faith" however, the surety "did have an explicit contractual duty to settle claims in good faith"); Scott Stainless Steel, Inc. v. NBD Chicago Bank, 253 Ill. App. 3d 256, 261-62, 192 Ill.Dec. 333, 625 N.E.2d 293, 297 (1993) (noting in the non-surety context, that banks may not waive duty of good faith in indemnity agreements). While Defendants cite to several cases for the proposition that a standard of commercial reasonableness under the UCC may not be waived, neither case appears to involve a surety relationship like the one at issue. See Watseka First Nat. Bank v. Ruda, 135 Ill. 2d 140, 552 N.E.2d 775, 142 Ill.Dec. 184 (Ill. 1990) (formulating UCC section 1-208 test for good faith in case brought against guarantors to recover debt on promissory notes for farming operations); AAR Aircraft & Engine Grp., Inc. v. Edwards, 272 F.3d 468, 470-71 (7th Cir. 2001) (holding that guarantors may not waive right to commercial reasonableness under Illinois UCC law).
Like Defendants' other challenges to the Amended Complaint, whether Plaintiff has acted in good faith in settling and negotiating claims it has received against the Bonds is a question left for later in this litigation. At this stage, the Court sees no reason to deprive Plaintiff of the surety protections it negotiated for in the Indemnity Agreement, particularly because sureties are entitled to protection against losses. See Travelers Cas. & Sur. Co. v. Ockerlund, No. 04-cv-3963, 2004 WL 1794915 at *5-6 (N.D. Ill. Aug. 6, 2004) (reasoning that the law favors protecting a surety's expectations and losses). The Court therefore rejects Defendants' arguments that the Indemnity Agreement is illusory or in violation of public policy on its face and finds that Plaintiff has adequately stated claims in the Amended Complaint. Accordingly, Defendants' Motion to Dismiss pursuant to Rule 12(b)(6) must be denied.
CONCLUSION
For these reasons, the Court DENIES Defendants' [18] Motion to Change Venue and [24] Motion to Dismiss First Amended Complaint.