United States of America et al v. Slurry Systems, Inc. et al

Filing 465

ORDER: Presently before the Court is the Renewed Motion For An Award of Pre-Judgment Interest Against Slurry Systems, Inc. [Dkt. 462 ] filed by Plaintiff Fidelity and Deposit Company of Maryland ("F&D"), as assignee of Pileco, Inc. For the reasons discussed more fully below, that motion will be granted in part, and denied in part; the Court awards F&D, as the assignee of Pileco, Inc, $69,426.35 in prejudgment interest. [For further details see order] - Signed by the Honorable Susan E. Cox on 7/21/2016. Mailed notice (np, )

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS

FIDELITY AND DEPOSIT COMPANY
OF MARYLAND, as assignee of
PILECO, INC. (n/k/a Pileco-Bauer, Inc.),
Plaintiff/Judgment Creditor
v.
SLURRY SYSTEMS, INC., et al.,
Defendant/Judgment Debtor.

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Case No. 09 C 7459
Magistrate Judge Susan E. Cox

ORDER
Presently before the Court is the Renewed Motion For An Award of Pre-Judgment
Interest Against Slurry Systems, Inc. [Dkt. 462] filed by Plaintiff Fidelity and Deposit Company
of Maryland (“F&D”), as assignee of Pileco, Inc. For the reasons discussed more fully below,
that motion will be granted in part, and denied in part; the Court awards F&D, as the assignee of
Pileco, Inc, $69,426.35 in prejudgment interest.
BACKGROUND
This Court set out the factual and procedural background of this case in its previous order
on April 1, 2016 [458]; the Court assumes familiarity with that background and only recounts the
portions necessary to decide the motion presently before the Court. The original plaintiff, Pileco,
Inc. (“Pileco”), sued both Defendant Slurry Systems, Inc. (“SSI”) for breach of contract under
Illinois common law, and SSI’s performance and payment bond surety F&D pursuant to the
Miller Act, 40 U.S.C. § 3131 et seq,. 1 because SSI refused to pay Pileco for a trench cutter that

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Pursuant to the Miller Act, SSI was required to post a bond “guaranteeing both the performance of the prime
contractor's contractual undertakings and the payment by the prime contractor of its subcontractors and material
suppliers.” See United States, ex rel Pileco, Inc. v. Slurry Systems, Inc., 804 F.3d 889, 891 (7th Cir. 2015).

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SSI had leased from Pileco to complete a federal reservoir project being ov erseen by the United
States Army Corps of Engineers. See United States, ex rel Pileco, Inc. v. Slurry Systems, Inc.,
804 F.3d 889, 891 (7th Cir. 2015). Eventually, a jury awarded $2,230,381.35 in favor of Pileco
and against SSI on the breach of contract claim, and $2,230,381.35 in favor of Pileco and against
F&D on the Miller Act claim. Cross-appeals were filed before the Seventh Circuit, and the case
was remanded to this Court to award pre-judgment interest, post judgment interest, and costs.
Following the remand, F&D paid Pileco $2,685,550.00 in satisfaction of the judgment
entered against it “and in settlement of Pileco’s claims against F&D for pre-judgment interest
and costs,” in exchange for a release of Pileco’s claims against F&D and an assignment of
Pileco’s judgment against SSI to F&D. (Dkt. 450 at ¶ 7.) F&D filed then a motion before the
Court, seeking, inter alia, $631,242.28 in prejudgment interest, and $50,641.96 in costs. The
Court granted the motion in part, and denied it in part; the Court awarded F&D $36,308.46 in
costs, dismissed F&D as a defendant and substituted F&D as a judgment creditor, and denied the
motion without prejudice as to the prejudgment interest. Regarding prejudgment interest, the
Court denied the motion because F&D provided very little guidance as to the appropriate amount
of interest, and the Court was concerned with the possibility of a double recovery for F&D
standing in the shoes of the assignor Pileco. F&D, as assignee of Pileco, filed a renewed motion
for prejudgment interest, which is presently before the Court. (Dkt 462.) Pileco has not
responded to the instant motion, and has represented that it does not intend to do so. F&D seeks
$524,595.00 in prejudgment interest from SSI.
DISCUSSION
As the assignee of Pileco, F&D “stands in the shoes of the assignor and assumes the same
rights, title and interest possessed by the assignor.” Perry v. Globe Auto Recylcing, 227 F.3d

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950, 953 (7th Cir. 2000). In other words, we must treat this motion precisely as we would if
Pileco were the movant. Pileco was damaged when SSI failed to pay Pileco under the terms of
the trench cutter lease. Pileco filed suit and won 2,230,381.35 judgments against both F&D on
Pileco’s Miller Act claim and SSI on Pileco’s breach of contract claim. Of course, these two
judgments arise from the same injury – namely, SSI’s refusal to pay Pileco for the trench cutter.
Pileco did not suffer $4,460,762.70 in damages (i.e., two 2,230,381.35 injuries), but instead
suffered $2,230,381.35 in damages, and had a choice of which defendant it would try to collect
from to make itself whole. Pileco’s injury also included prejudgment interest as part of its
compensatory damages, because “[m]oney today is simply not a full substitute for the same sum
that should have been paid some time ago.” See Williamson v. Handy Button Machine Co., 817
F.2d 1290, 1297 (7th Cir. 1987).
Pileco then settled its judgment against F&D for $2,685,550.00, which included
prejudgment interest and costs. If Pileco were bringing the instant motion, it would be seeking
an additional $524,595.00 from SSI on top of the $2,685,550.00 it collected from F&D as
satisfaction of the judgment against F&D. As noted above, the damages suffered by Pileco were
determined by the jury award -- $2,230,381.35. Assuming that the appropriate amount of
prejudgment interest on those damages is $524,595.00, as F&D seeks in this motion, Pileco
would be entitled to $2,754,976.35 in damages ($2,230,381.35 in damages, plus $524,595.00 in
prejudgment interest). Allowing Pileco to receive $2,685,550.00 from F&D and $524,595.00
would result in a double recovery to Pileco; essentially, Pileco would be collecting over $3.2
million on approximately $2.75 million dollars of damages.
This raises the specter of the collateral source doctrine, which states that “benefits
received by the plaintiff from a source wholly independent of and collateral to the wrongdoer

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will not diminish damages otherwise recoverable.” 2 State Sec. Ins. Co. v. Frank B. Hall & Co.,
Inc., 109 F.R.D. 95, 96 (N.D. Ill. 1985) (internal quotations and citations omitted). This issue
often comes up in the personal injury context, when a plaintiff receives payment on an insurance
policy it has taken out to protect against injury, while also seeking damages from the tortfeasor.
In such a case, courts must balance the possibility of a double recovery to the plaintiff with the
possibility that the wrongdoer will escape “paying for all the harm caused by his or her wrong.”
Id. Normally, courts have “resolved that dilemma by awarding the benefit of the collateral
source proceeds to the plaintiff, who has paid for them in one or another, and denying that
benefit to the defendant, who has not.” Id.
There are two purposes behind the rule in such cases. “The first is that one who
gratuitously donates a benefit to an injured party should not instead be forced, in effect, to
transfer that benefit to the wrongdoer.” Austin Co. v. Int’l Brotherhood of Elec. Workers, Local
Union No. 701, 665 F. Supp. 614, 619 (N.D. Ill. 1987). Obviously, this reason does not apply in
this case, as F&D did not gratuitously pay Pileco; F&D paid Pileco to satisfy a judgment entered
against it by a federal jury. “The second purpose is that one who pays for some insurance
against some type of injury should not be forced to donate the proceeds of that person’s industry
and foresight to the wrongdoer who cause the injury.” Id. This second purpose also does not
apply in this case, because Pileco did not pay for insurance; in fact, SSI is the party that
exercised foresight by securing the bond from F&D. 3

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Of course, it is questionable whether the money received from F&D is, in fact, “a source wholly independent of
and collateral to” the wrongdoer, SSI. If the money received from F&D was not a collateral source, the Court could
clearly reduce the amount of the judgment against SSI by the amount received from F&D. See Kirkland v. United
States, 1998 WL 895658, at *4 (N.D. Ill. Dec. 9, 1998). However, the Court does not reach that issue and will
proceed as though the payment from F&D was a collateral source.
3
The Court recognizes that the bond was a requirement under the Miller Act, but does not believe that fact changes
the analysis herein.

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However, “[o]ne approach the law had developed in certain appropriate cases for
accomplishing the goal of preventing a windfall to the defendant (that is, still holding the
defendant liable for damages) while simultaneously avoiding double recovery to the plaintiff is
the device of subrogation.” Id at 620. In fact, “a plaintiff does not enjoy the benefit of the
collateral source rule when his rights against the wrongdoer have been subrogated to an
indemnitor.” Id. at 620 (citing Carter v. Berger, 777 F.2d 1173, 1175 (7th Cir. 1985)). “In short,
when subrogation is appropriate, as it is when there is some sort of actual or implied subrogation
agreement, the collateral source rule does not apply.” Id. In such cases, the subrogation means
“that the plaintiff [is] no longer injured” because it has received payment for the injury, but the
defendant, “through subrogation, [is] still liable for the damages it caused – liable to the
[subrogee].” Austin Co., 665 F. Supp. at 620. In Miller Act cases, “it has been well-established
that a payment bond surety that discharges a contractor’s obligation to pay a subcontractor is
equitably subrogated to the rights of both the contractor and the subcontractor.” 4 National Am.
Ins. Co. v. United States, 498 F.3d 1301, 1306 (Fed. Cir. 2007).
In this case, the damages were caused by SSI as the wrongdoer when SSI breached the
lease agreement with Pileco. The collateral source is the funds owed to Pileco from F&D under
the performance and payment bond that SSI posted with F&D. Allowing Pileco to collect from
both the payment bond surety F&D and the prime contractor SSI for the full amount of its
judgment against both of them would surely result in double recovery to Pileco. Of course,
forcing F&D to shoulder the entire burden for SSI’s wrongdoing would result in a windfall to
SSI. However, as discussed above, “the device of subrogation has developed for the very
purpose of preventing a windfall to defendant while simultaneously avoiding a double recovery
4

It is unclear whether the surety is subrogated to rights of the subcontractor vis-à-vis the general contractor for the
contractor’s wrongdoing, or the United States government for payments that the government owed to the general
contractor. However, whatever the scope of the rights of the subcontractor, the surety is subrogated to those rights.

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to the plaintiff.” Edward Gray Corp. v. National Union Fire Ins. Co. of Pittsburgh, 1995 WL
437509, at *4 (N.D. Ill. July 21, 1995).
Upon paying Pileco approximately $2.6 million as a payment bond surety discharging
SSI’s obligation (as the prime contractor) to pay Pileco (as the subcontractor), F&D became
equitably subrogated to the rights of Pileco. See National Am. Ins. Co, 498 F.3d at 1306.
Conversely, Pileco’s damages were reduced by that same $2.6 million. Therefore, when Pileco
assigned its rights to collect its judgment against SSI to F&D, it could only assign its right to this
reduced amount. This Court finds that the prejudgment interest calculation of $524,595.00 in the
renewed motion is correct. 5 Together with the $2,230,381.35 judgment, SSI caused Pileco
$2,754,976.35 in damages. Subtracting the $2,685,550.00 that F&D paid to Pileco pursuant to
the surety bond, the remaining damages to Pileco were $69,426.35. That is what Pileco was
entitled to assign, and that is what F&D, standing in the shoes of Pileco is entitled to receive. As
such, the Court grants F&D’s motion in part, and denies it in part, and awards F&D $69,426.35.
The irony of this is that F&D may have greater rights under equitable subrogation, but the
Court does not reach the scope of F&D’s right as subrogee in this opinion. F&D’s brief signals
that it is aware of the possibility of subrogation or indemnification, but does not explain its
choice to proceed in the role of assignee. For example, F&D argues that “the assignment in no
way caps F&D’s recovery to the amount it paid Pileco to satisfy its judgment against F&D’s
payment bond,” and “[j]ust as important, the assignment also does not refer to subrogation.”
(Dkt. 463 at 6.) However, F&D does not explain why the lack of reference to subrogation is
“important” or how it would inform the amount that Pileco (or F&D as Pileco’s assignee) could
recover from SSI. Moreover, the assignment does, in fact, cap F&D’s recovery as an assignee,

5

The amount is calculated as follows: ($2,230,381.35/365) x .05 = $303.5 daily interest rate. $303.53 x 1,717 days
(January 6, 2009 to September 20, 2013) = $524,595.00

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because the assignment, as a matter of law, only assigns the rights that Pileco possessed at the
time of the assignment. Those rights were reduced by the amount that F&D paid to Pileco to
reduce Pileco’s damages. Later in its brief, F&D also asserts that “sureties have common law
rights of recourse against primary obligors like SSI including common law indemnity rights and
equitable subrogation rights that insurers typically do not have.” (Dkt. 463 at 8.) This Court’s
review of the case law suggests that F&D is correct on this account, and that it would have been
more appropriate for F&D to invoke one of those common law rights, rather than attempt to
recover monies as the assignee of a plaintiff who had been made substantially whole from one of
the co-defendants in the suit.
Nor do the cases cited by F&D prove otherwise. F&D relies heavily on Nationwide
Agribusiness Ins. Co. v. Tweet/Garot Mech., Inc., No. 04-c-0673, 2005 WL 2076672 (E.D. Wis.
Aug. 23, 2005), to support its position that “F&D is not precluded from seeking an amount of
pre-judgment interest from SSI as assignee of Pileco that exceeds what F&D owed to Pileco.”
(Dkt. 463 at 5.) In that case, an insurance company paid its insured for damages the insured had
suffered pursuant to an insurance policy that the insured had taken out; the insurance company
then sought to recover the amounts it had paid to its insured from the defendant, as well as the
amount of the amount of the deductible that the insured had paid to the insurance company. Id.
at *1. Crucially, the insurance company plaintiff in Nationwide brought “its complaint as the
subrogee” of the insured, and alleged that it was “subrogated to the rights of its insured to the
extent” of the payments it had made to the insured; 6 the complaint further alleged that the
insured “assigned to the [insurance company] its right of recovery of its deductible.” Id. In its

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In fact, the caption of that case shows that the insurance company initiated the suit as the subrogee of its insured.
Nationwide, 2005 WL 2076672, at *1.

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analysis of the case, 7 the court drew a key distinction – as to the amount that the insurance
company paid to the insured, it was “clearly subrogated to that extent,” but the amount of the
deductible was an issue of contractual assignment, not subrogation, because the insurance
company had not paid the insured’s deductible. Id. at 4 (“Subrogation is an act of the law,
depending not on contract, but upon principles of equity, while assignment is an act of the parties
and depends generally on intention”). As an assignee, the insurance company -- now standing in
the place of the insured – was only entitled to the amount of the loss that had not already been
paid by the insurance company. Had the insurance company, in its role as assignee, sought to
recover the amounts that the insurance company had paid to the insured, the court likely would
have found that to be an improper double recovery. However, as a subrogee, the insurance
company could recover the amount of the damages that it had already paid to the insured.
In short, the role in which you seek to recover the money matters. As an assignee of
Pileco, F&D is attempting to recover damages for which Pileco has already been made whole,
which is substantively different than the insurance company in Nationwide, where the insurance
company was attempting to recover those amounts as subrogee. The amount of damages that
Pileco suffered as a result of SSI’s failure to pay is fixed -- $2,230,381.35, plus interest. When
F&D paid $2,685,550.00 to Pileco, Pileco’s damages were reduced, and the only amount it could
legally assign to F&D as an assignee was the amount of its damages reduced by the
$2,685,550.00. F&D, in its role as assignee, is entitled to no more than that amount. It may have
greater rights in its role as subrogee or indemnitee, but not as an assignee, which is the position it
has taken in the instant law suit.

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The legal questions tackled by the court in Nationwide dealt with diversity jurisdiction and joinder, among other
issues that are not before the Court in the instant motion.

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Finally, F&D spends much of its briefs trying to factually distinguish several cases from
this one, but F&D misses the point. The cases cited by the Court in its previous opinion were
meant to stand for legal principles, not to present cases that are factually on all fours with the
instant suit, and for good reason; the Court has found no cases where a surety/ insurance
company has paid a party for damages caused by its own insured/obligor and then sought to
recoup that money from its insured/obligor through an assignment of the party’s claims against
the insured. 8 In fact, the Nationwide case cited by F&D involved an insurance company paying
its own insured, and seeking payment from the wrongdoer under both assignment and
subrogation theories; it did not involve in insurance company seeking reimbursement from its
own insured. Frankly, the Court has some misgivings about whether this maneuver would be
appropriate, beyond the risk of double recovery to the plaintiff. Doing so would essentially
transfer all of the risk that the obligor had paid for by securing the bond, which the surety has
agreed to assume by accepting the bond payment, and allow the surety to recoup the money it
promised to pay in the case of a failure on the part of the obligor. To the extent that such activity
is permissible, it seems to this Court that indemnification would be the appropriate avenue to
pursue.
However, the Court need not rule on that at this time. The Court has found no cases that
support F&D’s contentions. Assignees stand in the shoes of the assignor and can only recover
what the assignor could have legally recovered – no more, no less. Here, Pileco’s damages were
reduced when it received the payment from F&D, and it could only recover from SSI the amount
8

F&D argues that “[i]n contrast to insurers, who anticipate incurring a loss and charge premiums based on that
actuarial risk calculation, sureties like F&D merely guarantee the obligations of primary obligors and do not ever
anticipate incurring a loss.” (Dkt. 463 at 7.) The Court is not persuaded that this distinction is meaningful. If
sureties never anticipate incurring a loss due to their obligor’s actions, what precisely are they guaranteeing, and
why would anyone ever pay them for a payment or performance bond? Sureties, like insurance companies, accept
payment from their primary obligors and will take on the payment or performance should the primary obligor fail to
meet its obligations in exchange for accepting that payment. In many ways, the surety acts just as an insurance
company would.

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of damages remaining after F&D’s payment was deducted. That is the scope of the right that
F&D was assigned, and it is not entitled to any more than that as an assignee.

CONCLUSION
For the reasons discussed above, the Renewed Motion For An Award of Pre-Judgment
Interest Against Slurry Systems, Inc. [Dkt. 462] filed by Plaintiff F&D, as assignee of Pileco, is
granted in part, and denied in part; the Court awards F&D $69,426.35.

ENTER:
DATED:

7/21/2016

____________________________________
U.S. Magistrate Judge, Susan E. Cox

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