Opinion
CAUSE NO. NA 00-240-C H/K GP
May 22, 2003
Bingham McHale, LLP, Indianapolis, IN.
B. David L Simmons, Drewry Simmons Pitts Vornehm LLP., Indianapolis, IN.
Hiram Ely III, Greenebaum Doll McDonald, Louisville, KY.
Jay Jaffe, Baker Daniels, Indianapolis, IN.
Peter G. Rush, Bell Boyd Lloyd LLC, Chicago, IL.
Daniel D. Trachtman, Wooden McLaughlin LLP, Indianapolis, IN.
Sabin Willet, Bingham McCutchen LLP, Boston, MA.
ENTRY ON MOTION FOR SUMMARY JUDGMENT
This diversity case arises generally from the recent financial problems in the American steel industry and more specifically from the bankruptcy of a company that planned to operate a new plant to produce hot-dipped galvanized steel in Jeffersonville, Indiana. After one Chapter 11 bankruptcy filing and settlements among some of the parties, the only remaining claims are those claims that Dick Corporation ("D.C."), the general contractor that built the facility, has asserted against the project lender, defendant ING Capital LLC (successor-in-interest to defendant ING (U.S.) Capital Corporation). When the owner of the new plant, GalvPro, filed for bankruptcy protection in 2001, GalvPro owed D.C. a little more than $3 million for which payment had been withheld pending completion of the plant. GalvPro obtained relief from that debt through bankruptcy. D.C. now seeks to recover the retained funds directly from ING, the construction lender. The question here is how this $3 million loss from GalvPro's bankruptcy should be allocated between D.C. and ING.
ING moved for summary judgment. After ING filed its motion, the parties filed a joint stipulation dismissing D.C.'s claims against ING on the basis of "corporate domination" and for recovery for breach of contract on a theory that D.C. was a third party beneficiary of the loan agreement between ING and GalvPro. D.C.'s claim for unjust enrichment is the sole remaining claim. As explained below, the court grants ING's motion for summary judgment. The construction agreement between D.C. and GalvPro, the owner of the facility, clearly released ING from any liability to D.C. in conjunction with the construction of GalvPro's Jeffersonville facility. The parties allocated by contract the risk that GalvPro would be unable to pay its bills to D.C., and that contract should be enforced by leaving the loss with D.C.
I. Summary Judgment Standard
The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Summary judgment is appropriate when there are no genuine issues of material fact, leaving the moving party entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party must show there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A factual issue is material only if resolving the factual issue might change the suit's outcome under the governing law. Clifton v. Schafer, 969 F.2d 278, 281 (7th Cir. 1992). A factual issue is genuine only if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on the evidence presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Contract interpretation often presents a question of law for which summary judgment is appropriate. E.g., National Fire Casualty Co. v. West, 107 F.3d 531, 534-35 (7th Cir. 1997) (affirming summary judgment under Indiana contract law); Tri-Central High School v. Mason, 738 N.E.2d 341, 344 (Ind.App. 2000). In considering ING's motion, the court must consider the evidence in the light reasonably most favorable to D.C., and factual statements in this entry have been made on that basis.
II. Undisputed Facts
GalvPro L.P. was a limited partnership formed by Weirton Coatings LLC and Hoogovens Coatings USA, Inc. GalvPro was formed to construct and operate a single line manufacturing facility for the treatment of cold rolled full hard steel to produce hot-dipped galvanized steel in Jeffersonville, Indiana. Plaintiff D.C. is a construction company that primarily engages in larger construction projects and has its principal place of business in Pittsburgh, Pennsylvania.
ING is a financial institution. ING and GalvPro entered into a Loan and Security Agreement ("loan agreement") on May 5, 1998 to finance the construction and development of the Jeffersonville facility. Def. Ex. 1. Pursuant to the loan agreement, ING agreed to provide GalvPro with term and revolving loans in an aggregate principal amount of up to $66,000,000. O'Neil Aff. ¶ 7.
The loan agreement contained a provision concerning third party beneficiaries:
This agreement is intended to be for the benefit of only the parties hereto and is not intended to inure to the benefit of, or create or bestow any rights, remedies or privileges in, any third persons except for the permitted successors and assigns of the parties hereto.
Def. Ex. 1, § 11.14. GalvPro also granted ING a security interest in substantially all of its real and personal property. O'Neil Aff. at ¶ 8.
GalvPro then entered into a Design/Build Agreement ("construction agreement") with D.C. on February 12, 1999. Def. Ex. B. D.C. replaced D L, Inc., the previous general contractor who had been terminated. The construction agreement and the change order that the parties subsequently entered into constitute the entire agreement between D.C. and GalvPro with respect to the Jeffersonville facility. Breisinger Dep. at 16, 18; Def. Exs. B, C.
Robert Breisinger, a project manager for D.C. and the project manager for the Jeffersonville facility, testified on behalf of D.C. in a deposition taken pursuant to Fed.R.Civ.P. 30(b)(6).
Pursuant to the construction agreement, D.C. was to act as the general contractor for the Jeffersonville project, meaning that D.C. had responsibility for the overall construction of the facility and completion of the test period.
Breisinger Dep. at 24; Def. Ex. B. The construction agreement identified ING as the project lender. Def. Ex. B, § 16.1 ("Contractor acknowledges that Owner is financing the Project through a construction loan from ING . . ."). The construction agreement also named ING as a third party beneficiary to the construction agreement and included the following release:
Contractor shall in no event seek payments of any kind or nature directly from the Construction Lenders, and expressly releases the Construction Lenders from any and all liability whatsoever in connection with the Agreement Documents and the Work, it being understood that neither the Contractor nor its Subcontractors shall have recourse against the Construction Lenders in connection with the
Agreement Documents and the Work. Contractor understands and acknowledges that neither Contractor nor any of its Subcontractors is intended to be a third party beneficiary under or to the proceeds from the Project Financing. All contracts between Contractor and Subcontractor shall provide (a) an express statement to the effect that such Subcontractors are in no way to be deemed third party beneficiaries under the Agreement Documents or to the proceeds of the Project Financing and (b) that no recourse shall be had or made against the Construction Lenders in any manner whatsoever in connection with the construction of the Project. The Construction Lenders and their successors and assigns shall be deemed third-party beneficiaries of this Agreement and the other Agreement Documents.
Def. Ex. B; Construction Agreement § 16.3 (emphasis added).
As the construction progressed, D.C. sent monthly invoices to GalvPro, which ING approved pursuant to the construction agreement. Breisinger Dep. at 31, 32. The invoices were based on work performed during the prior month. Id. at 33. After an invoice was approved, GalvPro paid D.C. the invoice total minus a retainer of 10 percent. Id.; Def. Ex. B, Construction Agreement §§ 6.2 6.7. The retained funds, which are at the heart of the dispute between D.C. and ING, were to be paid by GalvPro to D.C. after completion of the project and after certain other terms were met. Def. Ex. B, Construction Agreement §§ 6.9 10.8.2.
According to D.C., GalvPro and D.C. agreed that final completion of the project occurred in late spring of 2000. Vornehm Aff., Ex. C (internal GalvPro e-mail correspondence dated February 16, 2001, stating that D.C. had sued GalvPro for final payment and that the $3 million payment "was due by June last year"); Vornehm Aff., Ex. D (letter from GalvPro dated May 25, 2000 stating that D.C.'s "notice of Final Completion will be accepted"); Vornehm Aff., Ex. E (e-mail correspondence from GalvPro to ING stating "I want to confirm that GalvPro believes the requirements for Final Completion have been met"). This was after the parties settled pricing differences in a "change order" and resolved a tension leveler issue. See Vornehm Aff., Ex. D.
GalvPro did not have sufficient funds to pay D.C. the retained funds without drawing further on its construction loan from ING. D.C.'s evidence indicates that ING refused to release to GalvPro a final payment sufficient to pay D.C. the retained funds. ING refused to release the funds even though both GalvPro and a construction consultant hired by ING had advised ING that D.C. should be paid the retained funds. See, e.g., Vornehm, Aff., Ex. D (internal GalvPro e-mail stating "ING has refused to let us pay" the $3 million).
D.C.'s evidence also indicates that around the same time that final completion occurred, ING was receiving reports that the "pricing and inventory positions in the U.S. sheet steel market have turned decidedly negative in a very short period of time — i.e., a matter of weeks since early-May." Vornehm Aff., Ex. I. The reports noted that "the excess supply situation in galvanized [steel] is serious and will take time to work itself out." Id.
Despite GalvPro's approval of the project's final completion, GalvPro did not pay (nor did ING pay) D.C. the retained $3 million. D.C. claims that it was to receive a total of approximately $31 million under the construction agreement, and has yet to receive $3,016,341, plus interest. D.C. Second Am. Cplt. ¶¶ 14-16. GalvPro filed for bankruptcy protection on August 10, 2001 when it still owed D.C. the retained funds. At that time, GalvPro also owed ING about $31.8 million. The bankruptcy court conducted a sale of assets and ultimately approved a sale to an ING affiliate for $15.8 million, leaving about $16 million still owed to ING, though the ING affiliate also owns the completed but dormant plant.
II. Motion for Summary Judgment
D.C. asserts that ING failed to release the retained funds to GalvPro, and therefore ING has been unjustly enriched by D.C.'s construction of the processing plant. ING argues that the construction agreement between GalvPro and D.C. designated ING as a third party beneficiary and released ING from any liability to D.C. regarding the project. In addition to ING's reliance on the release, ING argues that D.C.'s unjust enrichment claim also fails because there is no evidence that D.C. reasonably expected payment from ING, as opposed to GalvPro, the party with which D.C. actually contracted.
In response to ING's motion, D.C. has not directly addressed ING's assertion that the construction agreement released ING from liability, let alone shown that there is any reason not to enforce the contracts as written. The parties' written contracts allocated the risks that were realized here, including the risk that GalvPro would be unable to pay D.C. all the money it was owed. Those contracts leave D.C. without recourse from ING.
Because this case is within the diversity jurisdiction of a federal court sitting in Indiana, the court applies Indiana contract law to interpret the release clause in the construction agreement. See Deckard v. General Motors Corp., 307 F.3d 556, 560 (7th Cir. 2002), citing Strachan v. Nisbet, 202 F.2d 216, 218 (7th Cir. 1953). Section 17.6 of the construction agreement provides that Indiana law governs, and no party has argued that any other state's law applies.
Generally, only parties to a contract may enforce its provisions. Deckard, 307 F.3d at 561, citing OEC-Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314-15 (Ind. 1996). "One not a party to the contract may nonetheless enforce it by demonstrating that the parties intended to protect [it] under the agreement by the imposition of a duty in [its] favor." Deckard, 307 F.3d at 561, citing OEC-Diasonics, Inc. v. Major, 674 N.E.2d at 1315. Thus, for ING to enforce the release provision of the construction agreement between GalvPro and D.C., ING must show that it was a third party beneficiary to the construction agreement.
For ING to be a third party beneficiary, it must be clear that (1) the parties intended to benefit ING; (2) the contract imposes a duty on one of the contracting parties in favor of ING; and (3) performance of the contract's terms directly benefits ING. See Deckard, 307 F.3d at 561, citing Kiltz v. Kiltz, 708 N.E.2d 600, 602 (Ind.App. 1999). The intent to benefit the third party is the controlling factor in the inquiry. Garco Indus. Equip. Co. v. Mallory, 485 N.E.2d 652, 654 (Ind.App. 1985).
The plain language of Section 16.3 of the construction contract imposes a duty on D.C. in favor of ING — a release of liability — and such a release undeniably benefits ING. The language of the construction agreement expresses a clear and unambiguous intent by the parties to benefit ING. Section 16.1 specifically identifies ING as the project lender, and Section 16.3 states that the construction lender is a third party beneficiary to the contract. Centennial Mortgage, Inc. v. Blumenfeld, 745 N.E.2d 268, 276 (Ind.App. 2001) (specifically naming a third party evidences an intent to benefit that party). The broad release language of Section 16.3 itself, regardless of whether it covers the present suit, also expresses a clear intent to benefit ING. See, e.g., Estate of Carnahan v. ISM, Inc., 510 N.E.2d 748, 751 (Ind.App. 1987) (finding that an express agreement to protect a party from suit was evidence of an intent to benefit the party). The express language of the construction agreement permits only one conclusion: D.C. and GalvPro intended to benefit ING through the construction agreement, so ING can enforce its provisions, including the release provision.
The release in the construction agreement plainly bars D.C.'s unjust enrichment claim against ING. Indiana courts have a long tradition of enforcing contracts as written in order to further the freedom to contract. See, e.g., Trimble v. Ameritech Publishing, Inc., 700 N.E.2d 1128, 1129 (Ind. 1998). With respect to releases, the Indiana courts teach "that upholding releases serves an important public policy because it facilitates the orderly settlement of disputes." Zollman v. Geneva Leasing Associates, Inc., 780 N.E.2d 387, 392 (Ind.App. 2002), citing Prall v. Indiana Nat'l Bank, 627 N.E.2d 1374, 1377 (Ind.App. 1994), in turn citing Indiana Bell Tel. Co. v. Mygrant, 471 N.E.2d 660, 664 (Ind. 1984). "If judges could interpret a release to mean something that is contrary to the plain language because one party intended for it to mean something else, then parties would be discouraged from signing releases because they could not have confidence that a court would enforce the release's plain language." Zollman, 780 N.E.2d at 393 (citation omitted).
Under Indiana law, releases are governed by the same rules that apply to other types of contracts. Beaver v. Grand Prix Karting Ass'n, Inc., 246 F.3d 905, 909 (7th Cir. 2001) (applying Indiana law), citing Western Ohio Pizza, Inc. v. Clark Oil Refining Corp., 704 N.E.2d 1086, 1091 (Ind.App. 1999). Generally, courts first seek to determine the parties' intent by examining the express language of the contract. Under Indiana law, parol evidence may not be used to contradict the express, unambiguous language of a contract. Kokomo Tube Co. v. Dayton Equipment Services Co., 123 F.3d 616, 624 (7th Cir. 1997) (applying Indiana law), quoting Coates v. Jaye, 633 N.E.2d 334, 337 (Ind.App. 1994).
D.C. has not pointed the court to any extrinsic evidence tending to show that the parties to the construction agreement intended Section 16.3 to mean anything other than its plain language indicates. If such parol evidence had been offered, the court might have been obliged to consider it in determining the meaning of the release provision because Indiana law recognizes the "stranger to the contract" exception to the parol evidence rule. See Deckard, 307 F.3d at 563 (reversing district court's grant of summary judgment and remanding for consideration of parol evidence where third party sought to gain benefit of a broadly worded release), citing State Highway Comm'n v. Wilhite, 31 N.E.2d 281, 282 (1941) (permitting admission of parol evidence on the issue of whether parties intended to release plaintiff's claim against third party), Burns v. Thompson, 91 Ind. 146, 150 (Ind. 1883), and White v. Woods, 109 N.E. 761, 762-63 (Ind. 1915). Because ING was in privity with GalvPro, however, it is not clear that ING would actually qualify as a "stranger" to the construction contract under this doctrine. Cf. Deckard, 307 F.3d at 564.
The meaning of the release provision is clear: D.C. released ING "from any and all liability whatsoever in connection with the Agreement Documents and the Work," and D.C. agreed that it would "have no recourse against the Construction Lenders." See Rodenbeck v. Marathon Petroleum Co., 742 F. Supp. 1448, 1457 (N.D.Ind. 1990) (applying Indiana law; interpreting similarly broad language to release party from causes of action of any sort arising in the future). The broad language of Section 16.3 precludes any action brought by D.C. against ING involving the construction agreement. D.C.'s suit for recovery on the theory of unjust enrichment is therefore precluded by Section 16.3, because the claim is based on retained funds that are expressly governed by the construction agreement and the project work. Def. Ex. B, §§ 6.2, 6.7, 6.9.
The court need not reach the parties' other arguments regarding unjust enrichment, but a few observations are in order. Recovery based on a theory of unjust enrichment is premised on the absence of an express agreement governing the disputed relationship. See, e.g., Key Hotel Corp. v. Crowe, Chizek Co., 359 N.E.2d 262, 264-65 (Ind.App. 1977) ("The idea of a recovery based upon unjust enrichment of the party to be charged is a part of the law of constructive contracts or contracts implied by law."), citing Clark v. Peoples Sav. Loan Ass'n, 46 N.E.2d 681 (Ind. 1943). When there is an express contract governing the relationship there is no gap in the remedial system for unjust enrichment to fill, and it is therefore "superfluous to consider unjust enrichment." Key Hotel Corp., 369 N.E.2d at 265.
In the present case, an express contract governs the parties' dispute — the construction agreement between GalvPro and D.C., which makes ING a third party beneficiary of the release term. To allow plaintiff D.C. to proceed on a theory of unjust enrichment would be to allow "gratuitous duplication, or, worse, circumvention of carefully designed rules of contract law." All-Tech Telecom, Inc. v. Amway Corp., 174 F.3d 862, 869 (7th Cir. 1999) (denying claim for promissory estoppel where the parties' had an express contract governing their relationship).
As part of its unjust enrichment argument, D.C. uses the language of "vested" rights to payment and argues that the retained funds should be subject to a constructive trust in its favor. But there was no separate fund of assets, such as an escrow account, set aside to pay the retained funds. It is true that ING controlled the flow of funds for the construction project — that is, the flow of funds from ING to GalvPro. The whole point of the contract provisions in question here, however, was to protect ING from precisely the sorts of claims that D.C. has asserted. For purposes of ING's motion for summary judgment, the court assumes that D.C. had a perfectly valid claim against GalvPro for breach of its obligation to pay the retained funds to D.C. GalvPro's breach merely put D.C. in the position of any unsecured creditor, and the contract it signed meant that D.C. took the risk that GalvPro would not pay it all sums owed, including the retained funds due upon completion.
D.C. also argues that ING will be unjustly enriched because ING bought the completed plant in the bankruptcy sale. It remains to be seen whether ING will ultimately recover its own losses by selling the plant to a new operator. But the fact that ING bought the property in the bankruptcy sale does not affect D.C.'s rights — or rather its lack of rights — against ING. The contracts that D.C. signed gave up any rights D.C. might have had to try to reach past the bankruptcy GalvPro to secure payment directly from ING as the construction lender.
Conclusion
ING's motion for summary judgment on D.C.'s remaining claim for unjust enrichment is hereby granted. The release provision of the construction agreement between D.C. and GalvPro precludes D.C.'s claim for recovery on that basis. The court will enter final judgment accordingly.
So ordered.