Fidelity And Deposit Company Of Maryland v. C.E. Hall Construction, Inc. et al
Filing
76
ORDER granting in part and denying in part 10 Motion to Dismiss; denying 12 Motion to Dismiss. Signed by Judge William T. Moore, Jr on 3/30/12. (bcw)
IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF GEORGIA
SAVANNAH DIVISION
FIDELITY AND DEPOSIT COMPANY)
OF MARYLAND,
)
,. u Fr 2: 51
-
L
Plaintiff,
CASE NO. CV411-102
RM
C.E. HALL CONSTRUCTION, INC.;
C.E. HALL, INC.; C.E. HALL
DEVELOPMENT, LLC..; CHARLES E.
HALL, individually; ZENNIE
ELIZABETH HALL, individually;
and REMNANT PROPERTIES, LLC;
Defendants.
ORDER
Before the Court is Defendant C.E. Hall Construction,
Inc.'s ("Defendant Hall Construction") Motion to Dismiss
(Doc. 10) and Defendants C.E. Hall Development, LLC, C.E.
Hall, Inc., Charles E. Hall, Zennie Elizabeth Hall, and
Remnant Properties's ("Defendants") Motion to Dismiss (Doc.
12) . Defendant Hall Construction has moved to dismiss
counts two through six of Plaintiff Fidelity and Deposit
Company of Maryland's complaint.
(Doc. 10.)
Defendants
have also moved to dismiss count two of Plaintiff's
complaint.
(Doc. 12.)
For the following reasons,
Defendants' Motion to Dismiss count two (Doc. 12) is
DENIED.
Defendant Hall Construction's Motion to Dismiss
(Doc. 10) is GRANTED IN PART and DENIED IN PART. Defendant
Hall Construction's motion is GRANTED as to counts three
and six, and DENIED as to counts two, four, and five.
BACKGROUND
On August 18, 2004, C.E. Hall Construction, Inc., C.E.
Hall, Inc., C.E. Hall Development, LLC, Remnant Properties,
LLC,
Charles
E.
Hall,
and Zennie
Elizabeth Flail
(collectively, the "Indemnitors") entered into an
"Agreement of Indemnity" with Plaintiff.' (Doc. 17, Ex. A.)
Later, on February 23, 2009, the Indemnitors again entered
into an "Agreement of Indemnity" (collectively, with the
2004 indemnity agreement, "indemnity agreements") with
Plaintiff.
(Doc. 1, Ex. A.)
The execution of the
indemnity agreements, which completely indemnified
Plaintiff—the surety—was a condition for Plaintiff to issue
any performance and payment bonds naming Defendant Hall
Construction as principal. (Doc. 1 ¶ 11.)
According to Plaintiff, at the request of one or more
of the Indemnitors and pursuant to the indemnity
agreements, Plaintiff "executed payment and performance
bonds" in connection with Defendant Hall Construction's
1
For the purposes of the motions to dismiss, Plaintiff's
allegations set forth in its complaint will be taken as
true. See Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252,
1250 (11th Cir. 2009)
2
contract with the Southside Baptist Church ("Church") to
build a community outreach center. (Doc. 1 ¶J 12, 13.)
Sometime after construction began, the Church alleged that
Defendant Hall Construction failed to properly build the
community outreach center.
(Id. ¶ 13)
The Church then
made a performance bond claim against Plaintiff in the
amount of $2,000,000.
(Id. at ¶ 14.)
Plaintiff also paid
several of Defendant Hall Construction's subcontractors and
suppliers.
(Id. ¶ 15.)
Plaintiff then made demand on the Indemnitors to post
collateral with Plaintiff to "ensure that [Plaintiff] did
not suffer losses resulting from the claims asserted
against it." (Id. 1J 16.) The Indemnitors did not post any
collateral and Plaintiff entered into an agreement with the
Church and Upright Builders to settle its performance bond
for over $1,000,000. (Id.) Plaintiff alleges "by reason
of bonding [Defendant Hall Construction], [Plaintiff] has
suffered losses (including attorneys' and/or consulting
fees, costs, and expenses) in connection with having to
address and settle the claims by the Church and Upright
Builders, and to investigate and defend against the payment
bond claims by WTO and Griffin Contracting."
at ¶ 17.)
11
(Id.
According to the indemnity agreements, which contained
identical language, the Indemnitors agreed that, among
other things, they will
exonerate, indemnify, and keep indemnified the
Surety [Plaintiff] from and against any and all
liability for losses and/or expenses of
whatsoever kind or nature (including, but not
limited to, interests, court costs, and counsel
fees) and from and against any and all such
losses and/or expenses which the Surety may
sustain and incur: (1) By reason of having
executed or procured the execution of Bonds, (2)
By reason of the failure of the Contractor
[Defendant Hall Construction] or [Indemnitors] to
perform or comply with the covenants and
conditions of this Agreement or (3) In enforcing
any of the covenants and conditions of this
Agreement. Payment by reason of the aforesaid
causes shall be made to [Plaintiff] by the
Contractor and Indemnitors as soon as liability
exists or is asserted against
[Plaintiff]
whether or not [Plaintiff] shall have made any
payment therefor. Such payment shall be equal to
the amount of the reserve set by (Plaintiff]. In
the event of any payment by [Plaintiff],
[Defendant Hall Construction] and [Indemnitors]
further agree that . . . [Plaintiff] shall be
entitled to charge for any and all disbursements
made by it in good faith in and about the matters
herein contemplated by this Agreement under the
belief that it is or was liable for the sums and
amounts so disbursed, or that it was necessary or
expedient to make such disbursements, whether or
not such liability, necessity, or expediency
existed.
(Doc. 1, Ex. A ¶ 2; Doc. 16, Ex. A ¶ 19.)
As a result of
the alleged breaches of the General Indemnity Agreements,
Plaintiff brought this action.
Plaintiff alleged counts
one and two against the Indemnitors—breach of contract and
4
specific performance.
(Doc. 1 TT 24-42.)
Plaintiff
alleged counts three through six only against Defendant
Hall Construction. (Doc. 1 ¶I 43-69.) Defendant Hall
Construction has moved to dismiss all counts because they
fail to state grounds upon which relief can be granted.
(Doc. 10; Doc. 16.) Defendants have moved to dismiss only
count two, alleging that Plaintiff has failed to state a
claim upon which relief can be granted.
(Doc. 12; Doc.
17.)
ANALYSIS
I.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 8 (a) (2) requires a
complaint to contain "a short and plain statement of the
claim showing that the pleader is entitled to relief."
"[T]he pleading standard Rule 8 announces does not require
'detailed factual allegations,' but it demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation."
Aschroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting
Bell Ati. Corp. v. Twombly, 550 U.S. 544, 555 (2007)) •2
2
"A
Iqbal makes clear that Twombly has been the controlling
standard on the interpretation of Federal Rule of Civil
Procedure 8 in all cases since it was decided. Iqbal, 129
S. Ct. at 1953 ("Though Twombly determined the sufficiency
of a complaint sounding in antitrust, the decision was
based on our interpretation and application of Rule 8 . .
[that] in turn governs the pleading standard in all civil
actions and proceedings in the United States district
courts." (internal quotations and citations omitted))
5
pleading that offers labels and conclusions or a formulaic
recitation of the elements of a cause of action will not
do."
Igbal, 129 S. Ct. at 1949 (internal quotations
omitted) . "Nor does a complaint suffice if it tenders
naked assertions devoid of further factual enhancement."
Id.
When the Court considers a motion to dismiss, it
accepts the well-pleaded facts in the complaint as true.
Sinaltrainal, 578 F.3d at 1260. However, this Court is
"not bound to accept as true a legal conclusion couched as
a factual allegation." Igbal, 129 S. Ct. at 1949-50.
Moreover, "unwarranted deductions of fact in a complaint
are not admitted as true for the purpose of testing the
sufficiency of plaintiff's allegations." Sinaltrainal, 578
F.3d at 1268. That is, "[t]he rule 'does not impose a
probability requirement at the pleading stage,' but instead
simply calls for enough facts to raise a reasonable
expectation that discovery will reveal evidence of the
necessary element."
Watts v. Fla. Int'l Univ., 495 F.3d
1289 1 1295-96 (11th Cir. 2007) (quoting Twombly, 550 U.S.
at 545) In addition, if on a motion under Rule 12(b) (6),
"matters outside the pleadings are presented to and not
excluded by the court, the motion must be treated as one
for summary judgment under Rule 56."
6
Fed. R. Civ. P.
12(d) . Significantly, " [a] 11 parties must be given a
reasonable opportunity to present all the material that is
pertinent to the motion." Id.
II. CLAIMS ARISING FROM THE GENERAL INDEMNITY AGREEMENT
"In a diversity jurisdiction case, the court applies
the substantive law of the state in which the case arose."
Azar v. Nat'l City Rank, 382 F. App'x 880, 884 (11th Cir.
2010) . Therefore, the choice of law rules of the forum
state of Georgia determine what substantive law applies to
this dispute.
U.S. Fid. & Guar. Co. v. Liberty Surplus
Ins. Corp., 550 F. 3d 1031, 1033 (11th Cir. 2008). Georgia
applies the traditional rule of lex loci contractus.
Convergys Corp. v. Keener, 276 Ga. 808, 811, 582 S.E.2d 84,
86 (2003) . The parties agree that Georgia law governs this
dispute. Accordingly, the Court will apply Georgia law to
this case.
Under Georgia law, indemnity agreements are to be
strictly construed against the indemnitee and every
presumption is against such intention to indemnify. Serv.
Merch. Co. v. Hunter Fan Co., 274 Ga. App. 290, 292, 617
S.E.2d 235, 237-38 (2005) . However, this strict
construction principle is not required when the language in
an indemnity contract is plain, unambiguous, and capable of
only one reasonable interpretation. Anderson v. U. S. Fid.
7
& Guar. Co., 267 Ga. App. 624, 627, 600 S.E.2d 712, 715
(2004) .
The scope of an indemnity agreement creates a
question of law for the court.
George L. Smith II Ga.
World Cong. Ctr. Auth. v. Soft Comdex, Inc., 250 Ga. App.
461, 462, 550 S.E.2d 704, 705 (2001)
A.
Count Two - Stecific Performance
In its complaint, Plaintiff seeks specific performance
against Defendant Hall Construction and Defendants. 3 (Doc.
1 ¶ 35.) Plaintiff asserts that it had to fulfill
Defendant Hall Construction's obligations to the Church as
well as with subcontractors and suppliers. (Id. ¶ 34.)
Both Defendant Hall Construction (Docs. 10, 16) and
Defendants (Doc. 12, 17) have moved to dismiss count two on
the grounds that it seeks the same remedy and is
duplicative of count one.
(Doc. 16 at 4-5; Doc. 17 at 4-
5.)
Federal Rule of Civil Procedure 8(a) (3) requires that
pleadings provide "a demand for the relief sought, which
Neither motion to dismiss moves to dismiss Plaintiff's
first count. In count one, Plaintiff alleges against
Defendant Hall Construction and Defendants that they
breached the general indemnity agreements as guarantors and
indemnitors. (Doc. 1 11 24-31.) Plaintiff seeks 'judgment
against the [g]eneral [i]ndemnitors (jointly and severally)
for its damages, attorney's fees, costs, expenses, pre- and
post-judgment interest, and such other and further relief
as this Court deems just and proper. (Id. ¶ 31.)
8
may include relief in the alternative or different types of
relief." Further, "a party may set out [two] or more
statements of a claim or defense alternatively or
hypothetically, either in a single count or defense or in
separate ones.
If a party makes alternative statements,
the pleading is sufficient if any one of them is
sufficient." Fed. R. Civ. P. 8(d) (2). The Rules also
allow a party to raise separate claims, regardless of
whether they are inconsistent. Fed. R. Civ. P. 8(d) (3).
Under Georgia law, specific performance is "an
extraordinary, equitable remedy, which will be granted only
if the complainant does not have an adequate remedy at
law."
Kirkley v. Jones, 250 Ga. App. 113, 115-16, 550
S.E.2d 686, 690 (2001) . Indeed, "it is not a remedy that
either party can demand as a matter of absolute right and
will not be granted in any given case unless strictly
equitable and lust."
Id. at 116, 550 S.E.2d at 690.
However, "[s]ureties are ordinarily entitled to specific
performance of collateral security clauses."
71 Am. Jur.
2d Specific Performance § 180 (2012) . Other federal
district and appellate courts have held that a surety
company may seek both monetary and specific performance of
an indemnity provision requiring a collateral deposit. See
Liberty Mut. Ins. Co. v. Aven.tura Enq'q & Constr. Corp.,
9
534 F. Supp. 2d. 1290, 1320-21 (S.D. Fla. 2008) . The Ninth
Circuit Court of Appeals has found that '[s]ureties are
ordinarily entitled to specific performance of collateral
security clauses."
Safeco Ins. Co. of Am. v. Schwab, 739
F.2d 431, 433 (9th Cir. 1984).
Presently, Plaintiff has alleged two similar, though
not identical, alternative counts. In count one,
Plaintiff's request is for monetary damages from the breach
of the indemnity agreements. (Doc. 1 ¶f 24-31.) In count
two, however, Plaintiff requested specific performance of
the indemnity provision requiring a collateral deposit as a
remedy for breach of contract by Defendant Hall
Construction and Defendants, (Id. at ¶f 32-42.) Plaintiff
is not merely seeking to recover for damages due to the
previous non-performance, as in count one, but requesting
specific performance to compel the obligations under the
indemnity agreements to make a collateral deposit.
(Doc.
18 at 3.) This Court cannot sufficiently distinguish the
present case from cases in other courts where the plaintiff
was allowed to raise claims for specific performance.
Plaintiff is free to pursue alternative theories of
recovery, regardless of their consistency. See Brookhaven
Landscape & Grading Co. v. J.F. Barton Contracting Co., 676
F.2d 516, 523 (11th Cir. 1982) . Thus, the Court finds that
10
count two is not duplicative of count one and states a
claim upon which relief can be granted.
Plaintiff also alleges that it 'has no adequate remedy
at law to enforce its rights" under the indemnity
agreements and so it may properly seek specific
performance. (Doc. 1 at
I
39.) While Georgia has yet to
directly rule on this issue, other courts have recognized
that where liability of a surety under an indemnification
agreement has not yet been determined, but claims are
expected, specific performance for any collateral security
provision is proper. See The Hanover Ins. Co. v. Clark,
2006 WL 2375428, at *5_6 (N.D. Ill. 2006) (unpublished)
(finding that specific performance is proper where
unambiguous language in the indemnity agreement requires
posting of collateral security in the event of a demand
against plaintiff); Am. Motorists Ins. Co. V. United
Furnace Co., 876 F. 2d 293, 299-300 (2d Cir. 1989); Schwab,
739 F.2d at 433-34 (opining that an indemnity agreement
with a surety should be construed to require indemnitor to
provide collateral security upon demand by the surety).
The Court finds that Plaintiff's allegations as pled would
expose it to liability, permitting relief as required in
11
the indemnity agreements' and making specific performance an
available remedy. Accordingly, Defendant Hall
Construction's Motion to Dismiss (Doc. 10) as to count two
and Defendants' Motion to Dismiss (Doc. 12) is DENIED.
B.
Count Three - Quia Timet
Plaintiff's third count alleges a claim based in quia
timet because it has already incurred liability and "may be
called upon in the future to pay the debts" of Defendant
Hall Construction s (Doc. 1 ¶ 47.)
Plaintiff seeks to
4 In relevant part, "[p]ayment by reason of [ ] aforesaid
cause shall be made to the [Plaintiff] by [Defendant Hall
Construction and Defendants] as soon as liability exists or
is asserted against the Surety, whether or not the surety
shall have made any payments therefor." (Doc. 1, Ex.
A ¶ 2.)
5 Georgia law provides that
quia timet is sustained in equity for the purpose
of causing to be delivered and canceled any
instrument which has answered the object of its
creation or any forged or other iniquitous deed
or other writing which, though not enforced at
the time, either casts a cloud over the
complainant's title or otherwise subjects him to
future liability or present annoyance, and the
cancellation of which is necessary to his perfect
protection.
O.C.G.A. § 23-3-40. Further,
[i]n all proceedings quia timet or proceedings to
remove clouds upon titles to real estate, if a
proper case is made, the relief sought shall be
granted to any complainant irrespective of
whether the invalidity of the instrument sought
to be canceled appears upon the face of the
instrument or whether the invalidity appears or
12
prevent Defendant Hall Construction from "diverting or
disbursing any funds," to compel Defendant Hall
Construction to "post a bond or suitable collateral,"
freeze or attach Defendant Hall Construction's assets until
a bond is posted, enjoin Defendant Hall Construction from
"selling, transferring, disposing of, or liening any assets
or property," and grant a lien on all Defendant Hall
Construction's assets and property. (Doc. 1 ¶ 52(a)-(h).)
Defendant Hall Construction alleges count three fails to
allege a claim for which relief can be granted, contending
quia timet is only application in actions to quiet title to
land. (Doc. 16 at 5.) Plaintiff counters that quiet title
"is also used by the courts to enforce a surety's right as
a common law remedy." (Doc. 18 at 5.)
Georgia courts have found that quia timet is only
recognized as a remedy for an action to quiet title to
land.
See Cunningham v. Gage, 301 Ga. App. 306, 308, 686
S.E.2d 800, 801-02 (2009) .
At present, there is no title
of land at issue—the current dispute is not over title to
land, but rather a surety bond.
Under Georgia law,
therefore, Plaintiff's third count must be dismissed
arises solely from facts outside of the
instrument.
Q.C.G.A. § 23-3-41.
13
because it fails to state a claim upon which relief can be
granted. Accordingly, Defendant Hall Construction's Motion
to Dismiss is GRANTED as to count three.
C.
Count Four - Exoneration
In the fourth count, Plaintiff seeks to recover
against Defendant Hall Construction for exoneration. (Doc.
1 ¶ j 53-59.) Defendant Hall Construction has moved to
dismiss on the grounds that exoneration is not a remedy
under Georgia law separate and apart from what is provided
(Doc. 16 at 6.)
in the Indemnity Agreement."
Plaintiff
contends that exoneration 'is a remedy recognized by the
courts."
(Doc. 18 at 6.)
Exoneration is a common law equitable remedy that
"grants the surety the right to compel the principal to
perform or pay the bonded obligation, thereby protecting
the surety against liability under its performance or
payment bond."
4A Bruner & O'Connor Construction Law
12.98 (2011) . The surety's right of exoneration is
routinely confirmed and extended to indernnitees in a
written indemnity agreement created as an inducement to the
surety to provide bonds. Id. Georgia law is unclear as to
whether seeking common law remedies in addition to actions
for breach of contract or specific performance are
duplicative and thus barred. The issue is one split among
14
other states and other federal district and appellate
courts.
Compare Mukamal v. Bakes, 378 F. App'x 890 (11th
Cir. 2010) (finding creditors' derivative breach of
fiduciary duty duplicative of debtors' direct claims), with
Borey v. Nat'l Union Fire Ins. Co., 934 F.2d 30, 32-33 (2d
Cir. 1991) (holding that exoneration is proper where surety
cannot be made whole by resolution of alternative claims)
With this background, the Court finds that exoneration
is a recognized equitable remedy. And while there is
express language in the Indemnity Agreement calling for
exoneration, the Court will allow count four to proceed
because it states a claim upon which relief can be granted.
The Court is also cognizant to the fact that 'courts can
and should preclude double recovery." Gen. Tel. Co. v.
EEOC, 446 U.S. 318, 333 (1980) . Because Plaintiff may set
out alternative statements that are consistent or
inconsistent with other claims, Fed. R. Civ. P. 8(d),
Plaintiff has pled facts sufficient to state a claim upon
which relief can be granted. In the event that count four
survives further dispositive motions and proceeds to trial,
the Court will ensure that there is no duplicative
recovery. See id. Accordingly, Defendant Hall
Construction's Motion to Dismiss as to count four is
DENIED.
15
D.
Count Five - Equitable Subrogation
Plaintiff also alleges that it "is now [and] will be
equitably subrogated to the rights of the entities [and]
people that [Plaintiff] paid or pays on behalf of
[Defendant Hall Construction] ." (Doc. 1 ¶ 62,) Defendant
Hall Construction avers that dismissal of count five is
proper because it "completely fails to set forth the facts
necessary to state a claim against [Defendant Hall
Construction] by the entities to which Plaintiff made
payment" and because it "purports to assert an equitable
common law remedy of subrogation where there was an express
indemnity agreement." (Doc. 16 a 7-8.) Plaintiff counters
that it has"specifically alleged that it has paid Upright
Builders to settle its bond claim and that such an
allegation alone is enough to trigger Plaintiff's right to
recover against [Defendant Hall Construction] for equitable
subrogation.
(Doc. 18 at 8.)
Under Georgia law, there is no inherent right to
subrogation.
See Performance Food Grp. v. Williams, 300
Ga. App. 831, 834, 686 S..2d 437, 440 (2009) . However, as
subrogation is both a legal as well as equitable right,
courts " 'incline rather to extend than restrict the
principle.' " Aetna Cas. & Sur. Co. v. Westinghouse Elec.
Co., 176 Ga. App. 748, 753, 337 S.E.2d 390, 395 (1985)
16
(citing Argonaut Iris. Co. v. C & S Bank of Tifton, 140 Ga
App. 807, 810, 232 S.E.2d 135, 138 (1976)) Identical to
the exoneration count, Georgia courts have yet to directly
decide whether the equitable common law remedy of
subrogation is duplicative where relief is also sought
pursuant to express indemnity agreements. As Georgia
courts, under Georgia case law, are inclined to extend the
equitable remedy of subrogation, this Court will also apply
such a principle for the purposes of these pleadings. See
Westinghouse Elec., 176 Ga. App. at 753, 337 S.E.2d at 395.
Additionally, Defendant Hall Construction contends
that count five must be dismissed because it "fails to
allege the basis upon which such an entity would be
entitled to recover against [Defendant Hall Construction] ."
(Doc. 16 at 8.) Taking the well-pleaded facts as true,
however, the Court finds that Plaintiff's pleadings contain
sufficient
factual
enhancements
to
satisfy Igbal's
heightened pleading standard. Count five identifies the
Church, Upright Builders, and 'potentially others" that
Plaintiff was forced to pay or settle performance bond
claims. (Doc. 1 ¶ 64.) Accordingly, Defendant Hall
Construction's Motion to Dismiss as to count five is
DENIED.
17
E.
Count Six - Common Law Indemnity
Plaintiff has requested that the Court withdraw count
six for common law indemnity because Defendant Hall
Construction has conceded that it entered into the
indemnity agreements. The Court agrees. Accordingly,
Defendant Hall Construction's motion to dismiss as to count
six is GRANTED.
CONCLUSION
For the foregoing reasons, Defendants' Motion to
Dismiss count two (Doc. 12) is DENIED. Defendant Hall
Construction's Motion to Dismiss (Doc. 10) is GRANTED IN
PART and DENIED IN PART. Defendant Hall Construction's
motion is GRANTED as to counts three and six and DENIED as
to counts two, four, and five.
SO ORDERED this
day of March 2012.
WILLIAM T.MOO,JR.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
18
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