Parkcrest Builders, LLC v. Housing Authority of New Orleans
ORDER AND REASONS. It is ORDERED that Liberty's 67 Motion for Judgment on the Pleadings and 170 Motion for Judgment on the Pleadings and Motion to Dismiss are GRANTED in part and DENIED in part. It is FURTHER ORDERED that Liberty' ;s motion to dismiss HANO's fraud claim is GRANTED. It is FURTHER ORDERED that Libert's motion to dismiss HANO's breach of contract claim is DENIED. It is FURTHER ORDERED that Liberty's liability is capped at the penal sum of the bond. Signed by Judge Carl Barbier. (Reference: 15-1533)(gec)
UNITED STATES DISTRICT COURT
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
PARKCREST BUILDERS, LLC
THE HOUSING AUTHORITY OF NEW
ORDER AND REASONS
Before the Court is a Motion for Judgment on the Pleadings
(Rec. Doc. 67) filed by Intervenor Liberty Mutual Insurance Company
(“Liberty”), an opposition thereto (Rec. Doc. 70) filed by the
Housing Authority of New Orleans (“HANO”), and a reply (Rec. Doc.
75) filed by Liberty.
Also before the Court is a Motion for
Judgment on the Pleadings and Motion to Dismiss (Rec. Doc. 170)
filed by Liberty, an opposition thereto (Rec. Doc. 189) filed by
HANO, and a reply (Rec. Doc. 194) filed by Liberty.
considered the motion and legal memoranda, the record, and the
applicable law, the Court finds that the motion should be GRANTED
in part and DENIED in part.
FACTS AND PROCEDURAL BACKGROUND
This case arises out of disputes that occurred during the
construction of affordable housing units in New Orleans.
alleges that on March 4, 2013, HANO entered into a contract with
serve as the contractor for the construction of the Florida Avenue:
New Affordable Housing Units (the “Project”).
(Rec. Doc. 32 at
3.) Liberty alleges that because the project fell within the ambit
of the Louisiana Public Works Act, Parkcrest was obligated to
obtain a statutory performance and payment bond, and that it sought
the bond from Liberty.
Liberty avers that it issued a
payment and performance bond naming Parkcrest as principal and
HANO as obligee in connection with the project and that the bond’s
penal sum was $11,288,000.00.
(Rec. Doc. 67-1 at 4.)
Parkcrest deteriorated during the course of the project, and on
April 10, 2015, HANO terminated Parkcrest.
On May 8, 2015,
Parkcrest brought this suit against HANO, alleging that the delays
in the project were caused by HANO and that HANO breached the
contract by terminating Parkcrest “for convenience.”
HANO filed a counterclaim against Parkcrest, alleging that
delays in the project were attributable solely to Parkcrest. (Rec.
In its counterclaim, HANO seeks damages for the delays
and also asserts claims that allegedly arose after Parkcrest was
terminated from the project. Id. at 15.
After terminating Parkcrest, HANO called upon Liberty to
perform its obligations as surety for Parkcrest.
On or about June
9, 2015, HANO and Liberty entered into a Takeover Agreement to
complete the project. Liberty and HANO dispute the factual details
leading up to the Takeover Agreement, the interpretation of the
Takeover Agreement, and the details surrounding implementation of
the Takeover Agreement.
These disagreements create the basis for
the instant motion.
Once the Takeover Agreement was executed, Liberty retained
Parkcrest as its completion contractor.
(See Rec. Doc. 32 at 6.)
Liberty alleges that HANO began violating the Takeover Agreement’s
terms shortly thereafter by failing to make required payments,
reducing the amounts approved for payment, failing to timely
respond to change order proposals submitted by Parkcrest, and
performance of the project.
Id. at 6-8.
Liberty alleges that it
was working to complete items on a punch list that HANO had
purposefully withheld when HANO terminated it from the project on
June 29, 2016.
Id. at 8-9.
Liberty then intervened in this lawsuit to allege breach of
the Takeover Agreement, bad faith breach of contract, and wrongful
(Rec. Doc. 32.)
counterclaim against Liberty.
In response, HANO filed a
(Rec. Doc. 37 at 17.)
that Liberty acted as a de-facto contractor and is therefore liable
in amounts in excess of the penal sum of the bond.
further alleges that Liberty breached the terms of the Takeover
Agreement in bad faith and that it induced HANO to sign the
HANO alleges that it is due stipulated damages and general damages
arising out of Liberty’s failure to perform.
On December 19, 2016, Liberty filed an initial motion for
judgment on the pleadings (Rec. Doc. 67) on HANO’s counterclaim.
Thereafter, HANO moved to file a first supplemental and amended
counterclaim (“first amended counterclaim”) which the Magistrate
(See Rec. Doc. 79.)
HANO then moved to file a
counterclaim”), which the Magistrate Judge also granted.
Rec. Doc. 124.)
Liberty responded by filing a second motion for
judgment on the pleadings, this time also requesting dismissal of
HANO’s fraud claim for failure to state a claim under Federal Rule
of Civil Procedure 12(b)(6).
(Rec. Doc. 170).
Accordingly, the Court will analyze the
instant motion for judgment on the pleadings and motion to dismiss
by referring to the briefing for both motions filed by Liberty and
the original, first amended, and second amended counterclaim.
Johnson v. Moog, Inc., No. 10-67, 2011 WL 719600, at *1 n.1 (E.D.
Tex. Feb. 22, 2011).
Liberty argues that HANO’s fraud claim should be dismissed
because Liberty was under no obligation to disclose that its
representative for completing the construction was also providing
Liberty with litigation services.
Liberty also argues that HANO’s
breach of contract claim should be dismissed to the extent that
HANO alleges that Liberty breached the contract by using Parkcrest
as the completion contractor.
More specifically, Liberty argues
that the terms of the Takeover Agreement explicitly permitted
Liberty to use Parkcrest as the completion contractor.
Liberty argues that its liability is capped at the penal sum of
its bond because the Takeover Agreement specifically states that
Liberty would not be liable in excess of that amount.
In opposition, HANO argues that its fraud claim should not be
construction representative’s and Parkcrest’s role in the project,
and that HANO would not have entered into the Takeover Agreement
had it known the entire truth.
HANO also argues that its breach
of contract claim states a clear cause of action.
contends that Liberty is liable in excess of the penal sum of the
bond because it acted as a de-facto contractor on the project and
therefore lost the benefit of its liability cap.
Rule 12(c) provides that “[a]fter the pleadings are closed—
but early enough not to delay trial—a party may move for judgment
on the pleadings.” Fed. R. Civ. P. 12(c). A motion brought pursuant
to Rule 12(c) “is designed to dispose of cases where the material
facts are not in dispute and a judgment on the merits can be
rendered by looking to the substance of the pleadings and any
Props., Ltd., 914 F.2d 74, 76 (5th Cir. 1990).
Courts evaluate a motion under Rule 12(c) for judgment on the
pleadings using the same standard as a motion to dismiss under
Rule 12(b)(6) for failure to state a claim. Doe v. MySpace, Inc.,
528 F.3d 413, 418 (5th Cir. 2008) (citing Johnson v. Johnson, 385
F.3d 503, 529 (5th Cir. 2004)). To survive a Rule 12(b)(6) motion
to dismiss, the plaintiff must plead enough facts to “state a claim
to relief that is plausible on its face.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). A claim is facially plausible when the plaintiff
pleads facts that allow the court to “draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. A
court must accept all well-pleaded facts as true and must draw all
reasonable inferences in favor of the plaintiff. Lormand v. U.S.
Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009); Baker v. Putnal,
75 F.3d 190, 196 (5th Cir. 1996). The court is not, however, bound
to accept as true legal conclusions couched as factual allegations.
conclusions masquerading as factual conclusions will not suffice
to prevent a motion to dismiss.” Taylor v. Books A Million, Inc.,
296 F.3d 376, 378 (5th Cir. 2002).
HANO’s fraud claim revolves around three misrepresentations
allegedly made by Liberty during negotiations of the Takeover
Neither party disputes that the Takeover Agreement
contained the following provision: “[I]t is the Surety’s right, at
its sole discretion, to choose the completion contractor under
(See Rec. Doc. 67-1 at 5; Rec. Doc. 80 at 3.)
Thus, HANO acknowledges that the plain terms of the Takeover
Agreement permitted Liberty to use Parkcrest as its completion
misrepresentations made by Liberty induced HANO to agree to parts
of the Takeover Agreement to which it would not have otherwise
The first alleged misrepresentation made by Liberty is how it
characterized its decision to use Parkcrest as its completion
contractor under the Takeover Agreement.
HANO alleges that a
Liberty representative told HANO’s project manager that Liberty
intended to use Parkcrest as the completion contractor in order to
HANO also alleges that a Liberty representative told
HANO that Liberty had done a thorough search of Parkcrest’s work
throughout the country and found it to be satisfactory.
misrepresentations masked the depth of the relationship between
Liberty and Parkcrest.
The second alleged misrepresentation is very similar to the
HANO alleges that the real reason Liberty wanted Parkcrest
to be the completion contractor is that Liberty and Parkcrest had
engaged in a “dual defense agreement.”
As stated above, Parkcrest
had already filed suit against HANO prior to the execution of the
HANO alleges that Liberty and Parkcrest had
entered into a mutual agreement to defend Parkcrest’s performance
on the project.
HANO further alleges that Liberty never mentioned
the existence of this agreement to HANO in the period leading up
to the execution of the Takeover Agreement.
HANO alleges that it
would not have agreed to allow Parkcrest to serve as completion
contractor if it had known.
misrepresented to HANO the nature of Liberty’s relationship with
a company called Meridian Consulting Group, LLC (“Meridian”). HANO
states that it only consented to the use of Parkcrest as completion
representative on the project” to provide full-time oversight and
The representative was to serve as a liaison between
HANO and Parkcrest should any more disputes arise. Liberty told
HANO that it chose Meridian to play this supervisory role of
But HANO alleges that Liberty did not
disclose to HANO the true nature of the relationship between
Liberty and Meridian.
HANO alleges that Meridian has provided,
and continues to provide, Liberty with litigation support and
HANO alleges that if it had known the full
extent of Meridian’s participation, it would not have agreed to
allow Meridian serve as the representative.
HANO argues that
amounts to fraud.
Under Louisiana law, “[f]raud is a misrepresentation or a
suppression of the truth made with the intention either to obtain
inconvenience to the other.”
La. Civ. Code art. 1953.
claim against a party to a contract must contain three basic
elements: “(1) a misrepresentation, suppression, or omission of
true information; (2) the intent to obtain an unjust advantage or
to cause damage or inconvenience to another; and (3) the error
substantially influencing the victim's consent to (a cause of) the
Shelton v. Standard/700 Assocs., 2001-0587, p. 5 (La.
10/16/01), 798 So. 2d 60, 64.
Federal Rule of Civil Procedure
particularity the circumstances constituting fraud or mistake.”
Fed. R. Civ. P. 9(b).
failure to disclose the entire truth.
from silence or inaction.”
“Fraud may also result
La. Civ. Code art. 1953.
when fraud is alleged to have been perpetrated by silence or
suppression of the truth, “there must exist a duty to speak or to
McCarthy v. Evolution Petroleum Corp.,
2014-2607, p. 10 (La. 10/14/15), 180 So. 3d 252, 258.
no duty to speak or disclose exists but it “may arise where there
exists a fiduciary relationship between the parties.”
Grodner, 2007-1041, p. 4 (La. App. 4 Cir. 4/2/08); 982 So. 2d 891,
relationship as “one that exists when confidence is reposed on one
side and there is resulting superiority and influence on the
Plaquemines Par. Comm'n Council v. Delta Dev. Co., 502
So. 2d 1034, 1040 (La. 1987).
“The defining characteristic of a
confidence or trust imposed by one in another who undertakes to
act primarily for the benefit of the principal in a particular
Scheffler v. Adams & Reese, LLP, 2006-1774, p. 7 (La.
2/22/07); 950 So. 2d 641, 648.
HANO does not allege that a fiduciary relationship existed
counterclaim lead to such a conclusion.
In fact, the allegations
suggest that the relationship between HANO and Liberty was that of
two parties to a business transaction.
Liberty’s role as surety
did not create a fiduciary relationship.
See Nat'l Union Fire
Ins. Co. of Pittsburgh, Pa. v. Turtur, 892 F.2d 199, 207 (2d Cir.
1989) (“[I]n general, a surety does not owe a fiduciary duty to
Thus, Liberty was not obligated to disclose to
HANO acknowledges that Liberty disclosed Meridian’s
role as construction consultant.
It was not necessary for Liberty
to also disclose that Meridian would serve a dual role as its
See Wilson v. Mobil Oil Corp., 940 F. Supp. 944, 955
(E.D. La. 1996) (“[A]bsent a duty to disclose, silence with respect
to the details of a business transaction does not constitute
As to HANO’s allegations that Liberty made intentionally
false statements about Parkcrest in order to induce HANO to execute
the Takeover Agreement, this is inadequately pled.
HANO makes a
investigated Parkcrest’s work throughout the nation was false, but
provides no detail to support this accusation.
HANO’s allegation that Liberty committed a misrepresentation by
telling HANO that it chose Parkcrest as the completion contractor
in order to use Parkcrest’s subcontractors falls well short of
Even if Liberty had other reasons for choosing Parkcrest,
it is entirely plausible that Liberty was at least partially
enticed by the opportunity to use subcontractors who were familiar
with the work site.
HANO’s pleading does not require a contrary
Moreover, HANO has failed to explain how Liberty’s
construction consultant was meant to obtain an unjust advantage
for Liberty or to cause damage or inconvenience to HANO.
Civ. Code art. 1953. Accordingly, HANO’s fraud claim is dismissed.
Breach of the Takeover Agreement
Contracts in Louisiana must be performed in good faith.
Civ. Cod. art. 1983.
“An obligor in bad faith is liable for all
the damages, foreseeable or not, that are a direct consequence of
his failure to perform.”
La. Civ. Code art. 1997.
implies “the conscious doing of a wrong for dishonest or morally
Sartisky v. Louisiana Endowment for the
Humanities, No. 14-1125, 2014 WL 5040817, at *2 (E.D. La. Sept.
26, 2014) (quoting MKR Servs., LLC v. Dean Hart Constr., LLC,
44,456, p. 6 (La. App. 2 Cir. 7/8/09), 16 So. 3d 562, 566).
HANO alleges that Liberty breached the Takeover Agreement in
allegation that Liberty, in bad faith, failed to arrange for
completion of the project diligently and expeditiously.
Doc. 37 at 18.)
The first amended counterclaim fleshes out the
breach of contract claim by providing more specific allegations.
First, HANO argues that Liberty and Parkcrest worked in tandem to
increase the amount that would be payable to Parkcrest.
representative on the project during the course of the work.
Finally, HANO alleges that Liberty failed to provide adequate
oversight and management as agreed in the Takeover Agreement,
failed to complete the project according to the contract, and
failed to achieve substantial completion.
Liberty does not argue that the entire breach of contract
claim should be dismissed; rather, it contends that any allegation
that Liberty violated the Completion Agreement when it retained
However, HANO’s breach of contract claims, as stated in both the
original, first amended, and second amended counterclaim, includes
no allegation that Liberty violated the Takeover Agreement in that
In fact, HANO expressly acknowledges that it entered into
Parkcrest as the completion contractor.
(See Rec. Doc. 70 at 1-
2.) Accordingly, further analysis of Liberty’s motion for judgment
on the breach of contract claim is unnecessary and Liberty’s motion
III. Extent of Liberty’s liability
The final issue is whether Liberty is liable for damages in
excess of the penal sum of its bond resulting from the allegations
that it breached the Takeover Agreement.
As described above,
Liberty issued a payment and performance bond naming Parkcrest as
Liberty argues that its liability is capped at
the sum of the penal bond.
HANO contends that Liberty functioned
as a de-facto contractor on the project and is therefore liable
for amounts exceeding the penal sum of the bond for its alleged
breach of the Takeover Agreement.
Louisiana’s Public Works Act requires that the successful
bidder to whom a public works contract has been awarded “shall
furnish good and solvent bond in an amount not less than one-half
of the amount of the contract, for the faithful performance of his
La. Stat. Ann. § 38:2216(A)(1).
The issuance of the
bond results in the surety becoming bound “to pay up to the amount
of the bond in the event of nonfulfillment or nonperformance of
the contractor's obligations for the public works contract.” Scott
v. Red River Waterway Comm'n, 41,009, p. 6 (La. App. 2 Cir.
4/12/06), 926 So. 2d 830, 835.
Because Liberty issued a bond on
a public works project with the penal sum of $11,288,000.00, this
is the extent of its obligation as surety.
“The liability of Surety under this Agreement is strictly limited
to the penal sum of the Bond.
In no event will Surety be required
to expend more than the penal sum of its Bond.” 1
(Rec. Doc. 23-5
Nevertheless, HANO alleges that Liberty served as a decontractor
The Takeover Agreement was filed by HANO as an exhibit to the counterclaim it
filed against Parkcrest. HANO’s counterclaim against Liberty incorporates by
reference its counterclaim against Parkcrest.
paperwork submitted by Liberty to HANO after execution of the
Takeover Agreement was sent and signed by “Contractor: Liberty
In Louisiana, a surety who steps into the shoes of the
contractor and takes an active role in the completion of the
project loses the benefit of its liability being capped at the
Klein v. J.D. & J.M. Collins, 106 So. 120, 122 (1925).
In Klein v. J.D. & J.M. Collins, the Louisiana Supreme Court
addressed a scenario where a contractor agreed to build a duplex
Id. at 121.
The plaintiff alleged that when
the contractor on the project could no longer afford to pay its
laborers, the surety on the bond agreed to undertake completion of
The court concluded that if the surety had
“left it to the owner to complete the work upon the default of the
contractors, unquestionably the company could not be held liable
for more than the amount for which it had bound itself as surety
. . . .”
Id. at 122.
But if the surety agreed to complete the
project upon the contractor’s failure to do so, then it “put itself
in the place of the contractors from the moment of the new
undertaking, and became liable for the costs of completing the
building, without reference [to] the amount for which it had signed
Liberty acknowledges that a surety can become bound in excess
of the penal sum of the bond when it assumes the role of contractor,
but argues that such a scenario could not exist here because the
Takeover Agreement expressly states that Liberty’s liability is
limited to the penal sum of the bond.
The Court agrees.
Louisiana Public Works Act “does not specifically detail how the
Scott, 926 So. 2d at 836.
When HANO terminated
Parkcrest from the project, it called upon Liberty to perform its
duty as surety.
At that time, both parties entered into the
Takeover Agreement whereby Liberty agreed to oversee the Project’s
As described in Klein, Liberty’s decision to oversee
completion could have exposed it to liability in excess of the
penal sum of the bond.
It is for this reason that “takeover
agreements are often carefully negotiated by sureties to preserve
Construction Law § 12:22.
The Takeover Agreement between HANO and
Liberty included a clause expressly limiting Liberty’s obligation
to the penal sum of the bond.
This is one mechanism a surety may
employ to prevent becoming liable in excess of the penal sum of
See Int’l Fid. Ins. Co. v. County of Rockland, 98 F.
Supp. 2d 400, 429 (S.D.N.Y. 2000) (“To avoid liability in excess
of the bond amount, . . . the surety must include a clause in the
takeover agreement which limits the surety's liability in the
course of performance to the original bond penalty.”) (quoting
Bruce C. King, Takeover and Completion of Bonded Contracts by the
W./Demaria Joint Venture III, No. 8:13-CV-128-SCB-TGW, 2014 WL
4162787, at *11 (M.D. Fla. Aug. 21, 2014) (holding that “even if
performing surety can limit its liability by expressly so providing
in a contract with the benefitted obligee”).
meaning and intent of the parties to a written instrument should
be determined within the four corners of the document, and its
terms cannot be explained or contradicted by extrinsic evidence.”
Scott, 926 So. 2d at 834.
The terms of the Takeover Agreement are
clear, and the Court need not look beyond them to determine that
HANO and Liberty agreed that Liberty would not be liable for
damages in excess of the penal bond.
IT IS ORDERED that Liberty’s Motion for Judgment on the
Pleadings (Rec. Doc. 67) and Motion for Judgment on the Pleadings
and Motion to Dismiss (Rec. Doc. 170) are GRANTED in part and
DENIED in part.
IT IS FURTHER ORDERED that Liberty’s motion to dismiss HANO’s
fraud claim is GRANTED.
IT IS FURTHER ORDERED that Liberty’s motion to dismiss HANO’s
breach of contract claim is DENIED.
IT IS FURTHER ORDERED that Liberty’s liability is capped at
the penal sum of the bond.
New Orleans, Louisiana this 5th day of June, 2017.
CARL J. BARBIER
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?