Berkley Regional Insurance Company v. Morgan et al

Filing 24

MEMORANDUM. Signed by Chief Judge James K. Bredar on 10/11/2017. (krs, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
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BERKLEY INSURANCE CO.,

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Plaintiff

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v.

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JOHN A. MORGAN III, et al.

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Defendants.
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CIVIL NO. JKB-17-877

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MEMORANDUM
Plaintiff Berkley Insurance Company brought this action against Defendants John A.
Morgan III and LaDonna Morgan on March 31, 2017, alleging that Defendants had breached an
indemnity agreement by not paying Plaintiff for costs it incurred in paying out claims on
payment and performance bonds that Plaintiff had issued. (Compl., ECF No. 1.) Plaintiff‟s
complaint contained three counts, but Plaintiff now moves for Summary Judgment only on
Count I, seeking contractual indemnity. (Mot. Summ. J. ¶ 6, ECF No. 17.) Defendants have
moved to dismiss (ECF No. 21). No hearing is necessary to resolve the matter. See Local Rule
105.6 (D. Md. 2016). For the reasons set forth in this memorandum, Plaintiff‟s Motion for
Summary Judgment will be granted by accompanying order. Defendants‟ motion is construed as
a motion for summary judgment and will be denied by accompanying order.
There are two initial matters to dispose of before proceeding to the facts of this case and
the merits of the Parties‟ motions. First, Defendants deny that there is subject matter jurisdiction.
(Ans. ¶ 4.) However, Plaintiff has citizenship in Delaware and Connecticut, Defendants are
citizens of Maryland, and the amount in controversy exceeds $75,000. Therefore, this Court has

jurisdiction under 28 U.S.C. § 1332(a). Second, Defendants have moved to dismiss the case, and
the Court must determine how to construe this motion. Defendants, who are proceeding pro se,
filed this motion after Plaintiff‟s motion for summary judgment and well after Defendants had
filed their answer (ECF No. 11). The motion is titled a “Motion for Dismissal” and seems to be
filed pursuant to Federal Rule of Civil Procedure 60, which is the federal rule for relief from
judgment, which would not be proper to consider at this time. Essentially the motion contains
three arguments as to why Plaintiff should not prevail in this matter. Therefore, while titled as a
motion to dismiss, the motion does not rely on any defense outlined in Rule 12(b) and so the
Court will treat this filing as a response to Plaintiff‟s motion for summary judgment as well as a
motion for summary judgment against the Plaintiff.
I.

Background
Sometime before April of 2015, GreeCon, a construction subcontractor that builds

elevators, entered into a contract to install elevators at the MGM National Harbor. (Compl. ¶¶ 67.) GreeCon requested that Plaintiff issue payment and performance bonds securing GreeCon‟s
commitments under their contract to construct the elevators. (Compl. ¶ 8; MGM National
Bonds, Pl.‟s Mot. Summ J. Ex. B, ECF No. 17-3.)1 In April of 2015, Plaintiff issued such bonds
on behalf of GreeCon. (See Compl. ¶ 8; MGM National Bonds.) In “partial consideration for
Berkley to issue” those bonds, Brandey Rodgers, Managing Member of GreeCon, Defendant
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At times in Defendants‟ Answer they “deny” certain allegations, but do not actually respond to the
substance of Plaintiff‟s allegation. Here, for instance, in paragraph eight of its complaint, Plaintiff alleges that
“Berkley issued payment and performance bonds at the request of GreeCon, and in connection with the MGM
National Project, including but not limited to those bonds numbered 0181945 (the „MGM National Bonds‟).”
(Compl. ¶ 8.) Defendants‟ answer to this allegation is “DENIES; No documentation provided JOHN A. MORGAN
III nor LADONNA MORGAN approving or signing any portion of the „MGM National Bonds.‟” (Ans. ¶ 8.)
However, Plaintiff does not allege that Defendants approved or signed the MGM National Bonds. Under Rule
8(b)(2) denials “must fairly respond to the substance of the allegation.” Therefore, when the Defendants “deny”
allegations but state reasons that are unrelated to the substance of the Plaintiff‟s allegations, the Court views those
denials as admissions of the substance of Plaintiff‟s allegation. See King Vision Pay Per View, Ltd. v. J.C. Dimitri’s
Restaurant, Inc., 180 F.R.D. 332, 334 (N.D. Ill. 1998) (deeming as admissions defendant‟s responses that did not
respond to the substance of plaintiff‟s allegation but stated “Neither admit nor deny the allegations of said
Paragraph–, but demand strict proof thereof.”)).

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John A. Morgan III, then a GreeCon employee, and his wife LaDonna Morgan all signed a
“General Agreement of Indemnity” (“Indemnity Agreement”) in which they all agreed to jointly
and severally indemnify Plaintiff against “any and all demands, claims, liabilities, costs, losses,
penalties, obligations, interest, damages and expenses of whatever nature or kind, including but
not limited to attorneys‟ fees . . . and costs and fees incurred in investigation and adjustment of
claims or potential claims.” (See Pl.‟s Mot. Summ. J. Ex. A, Ibsen Aff. ¶ 5, ECF No. 17-2,
hereinafter “Ibsen Aff.”; General Agreement of Indemnity, Pl.‟s Mot. Summ. J. Ex. D ¶ 1, ECF
No. 17-5, hereinafter “Indemnity Agreement”.) Essentially, Plaintiff secured GreeCon, and
Defendants indemnified Plaintiff, so that if GreeCon was unable to perform, Plaintiff would pay,
but could collect from Defendants.
Ultimately, GreeCon apparently defaulted on its obligations under the contract, because
“numerous claims” were submitted to Plaintiff. (Ibsen Aff. ¶ 6.) Plaintiff hired consultants to
investigate some claims in part because Plaintiff was unfamiliar with the “niche area of
construction [in] which GreeCon was involved.” (Id. ¶ 7.)

Overall, Plaintiff incurred

$133,821.23 in legal and engineering consulting costs in association with these claims, including
$78,293.50 in legal fees litigating the instant action. (Id. ¶ 11.) Plaintiff has paid out over $1.2
million dollars “pursuant to its obligations under the Bonds.” (Id. ¶ 8.)
Plaintiff filed this lawsuit on March 31, 2017, seeking payment under the Indemnity
Agreement, an injunction preventing Defendants from transferring or encumbering their assets,
and specific performance of the Indemnity Agreement. (Compl., ECF No. 1.) Defendants
answered on May 22.

(ECF No. 11.)

Defendants admit that they signed the Indemnity

Agreement, and that they “did not contest any payments made by [Plaintiff] arising out of claims
made on the Bonds.” (Pl.‟s Mot. Summ. J. Ex. E, First Set of Requests for Admission 5-6, ECF

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No. 17-6.)2 Furthermore, the Defendants do not deny that the Indemnity Agreement requires
them to indemnify Plaintiff for claims, and associated costs, arising from the bonds.
II.

Standard for Summary Judgment
“The court shall grant summary judgment if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing predecessor to
current Rule 56(a)). The burden is on the moving party to demonstrate the absence of any
genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). If
sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing
the motion, then a genuine dispute of material fact is presented and summary judgment should be
denied. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, the “mere
existence of a scintilla of evidence in support of the [opposing party‟s] position” is insufficient to
defeat a motion for summary judgment. Id. at 252. The facts themselves, and the inferences to
be drawn from the underlying facts, must be viewed in the light most favorable to the opposing
party, Scott v. Harris, 550 U.S. 372, 378 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir.
2008), who may not rest upon the mere allegations or denials of his pleading but instead must, by
affidavit or other evidentiary showing, set out specific facts showing a genuine dispute for trial,
Fed. R. Civ. P. 56(c)(1). Supporting and opposing affidavits are to be made on personal
knowledge, contain such facts as would be admissible in evidence, and show affirmatively the
competence of the affiant to testify to the matters stated in the affidavit. Fed. R. Civ. P. 56(c)(4).

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Defendants did not respond to Plaintiff‟s Request for Admission within thirty days of receipt, and
therefore the statements are considered admissions. See Fed. R. Civ. P. 36(a)(3).

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III.

Analysis
The Indemnity Agreement contains a choice of law provision dictating that the

Agreement be construed in accordance with the laws of the State of New York. (Indemnity
Agreement ¶ 14.) Therefore, when construing the terms of the contract or its validity, the Court
will do so under the law of the State of New York.
Plaintiff‟s contention is simple: Defendants signed a contract agreeing to indemnify
Plaintiff if it had to pay claims under the performance and payment bonds it issued for GreeCon.
Plaintiff has had to pay claims under those bonds, and now Defendants must be held to the
contract. Defendants‟ response is somewhat more convoluted. The substance of Defendants‟
response is this: (1) Plaintiff issued these bonds “based on unfair, deceptive, or predatory
practices” and knew that Defendants, who do not have sufficient assets to indemnify the
Plaintiffs now (see Def.‟s Mot Dismiss Ex. A, Personal Financial Statement, ECF No. 21-1), did
not have sufficient assets to indemnify the Plaintiff then. (2) This is a “frivolous lawsuit”
because Plaintiff has, apparently, chosen not to sue the President of GreeCon who also signed the
Indemnity Agreement, and instead sued the Defendants.

Because Plaintiff knows that

Defendants are unable to pay, Plaintiff‟s choice to sue Defendants is frivolous. Finally (3) the
only reason the project failed and GreeCon defaulted is that Defendant John A. Morgan III was
“forced” to leave GreeCon, and if he had remained the project would have succeeded and
Plaintiff would have suffered no loss.
These are serious statements, but they are misplaced. The question before the Court is
whether the contract that Defendants signed is valid and enforceable. If it is, then Defendants
must abide by this contract.

If Plaintiff did engage in deceptive or unfair practices, then

Defendants may have an action against it. If Defendant John A. Morgan III was improperly

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terminated from his position at GreeCon, then he may have an action against GreeCon. But
Defendants‟ arguments simply do not have purchase in this action, and therefore Defendants‟
motion, construed as a motion for summary judgment, will be denied. Again, the decisive
question before the Court is whether the Indemnity Agreement is valid and enforceable.
The Court finds that the Indemnity Agreement is valid and enforceable. This Agreement
is governed by the laws of New York and there is a case from New York that is squarely on
point. See International Fidelity Ins. Co. v. Spadafina, 596 N.Y.S.2d 453 (N.Y. App. Div.
1993).

In Spadafina, a company, Autotronics Products, contracted with the United States

Government to install lights at an airport. 596 N.Y.S. at 454. Autotronics subcontracted with
Kelly Electrical, and obtained “performance and payment bonds indemnifying Kelly for its
work.”

Id. International Fidelity Insurance Company agreed to act as surety for those bonds.

Id. Joseph Spadafina, an employee of Autotronics, agreed to indemnify International. Kelly
ultimately claimed that Autotronics did not pay Kelly for its work and filed a claim against
International to cover. Id. International paid Kelly and then sought indemnification from
Spadafina. Id. Spadafina refused to pay, claiming that Autotronics had paid Kelly but that Kelly
had refused to accept its tender. Id. International moved for summary judgment, which was
denied. Id. On appeal, the New York Appellate Division reversed.
The Appellate Division first explained that “[c]ourts [in New York] have upheld the
validity of such contractual arrangements and have ruled that payments made by sureties under
such provisions are scrutinized only for good faith and reasonableness as to the amount paid.”
Id. at 639 (citing cases). The court further explained that “it is irrelevant whether Spadafina was
actually liable on the underlying debt to Kelly.” Id. Instead, what was relevant was that:
International has stated a prima facie case under the contract by submitting proper
documentation of payment of the settlement to Kelly as well as the fees and costs
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incurred in making a settlement . . . and . . . Spadafina‟s conclusory affidavits are
insufficient to raise a triable issue as to either the bona fides of the settlement or
as to the reasonableness of its amount.
Id. at 454-55 (internal citations omitted).
Such is the case here.

The Indemnity Agreement provides that Defendants are to

“[i]ndemnify and save harmless [Plaintiff] from and against any and all demands [and] claims.”
Plaintiff has paid out claims arising from the bonds that it issued. New York courts have upheld
the validity of such agreements. Id. at 638. Defendants do not dispute the “bona fides” of the
claims that Plaintiff has paid out, or the reasonableness of those amounts. See id. at 639. Rather,
Defendants raise “irrelevant” claims, including, as in Spadafina, claims against a third party
(GreeCon) that have no bearing on Plaintiff‟s right to collect under the contract. See id. at 638.
In short, there is no dispute of material fact as to whether the contract is valid and enforceable, or
whether the amounts that Plaintiff has paid out or expended are reasonable. See id. at 639
(“[P]ayments made by sureties under such provisions are scrutinized only for good faith and
reasonableness as to the amount paid.”). Plaintiff is entitled to judgment as a matter of law.
IV.

Conclusion
There is no dispute of material fact as to whether the Indemnity Agreement is valid and

enforceable or as to the amount that Defendants owe under the Indemnity Agreement.
Therefore, Plaintiff‟s motion for summary judgment will be granted by accompanying order.
Because Defendants‟ arguments do not contest the validity or enforceability of the Indemnity
Agreement nor the amount due under the Indemnity Agreement, Defendants‟ Motion for
Dismissal, construed as a Motion for Summary Judgment, will be denied by accompanying
order. Judgment will be entered in favor of the Plaintiff and against Defendants John A. Morgan
III and LaDonna Morgan on Count I, jointly and severally, in the amount of $1,345,976.49, plus

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$21,572.50 prejudgment interest,3 plus postjudgment interest at the prevailing federal rate until
Defendants have paid the judgment.
DATED this 11th day of October, 2017

BY THE COURT:

___________/s/_________________
James K. Bredar
United States District Judge

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Based on New York state law rate of 9%, see N.Y. C.P.L.R. § 5004 (McKinney), from August 7, 2017,
the date of filing the Motion for Summary Judgment, on which Plaintiff was owed $1,345,976.49 by Defendants
under the Indemnity Agreement. (See Ibsen Aff. ¶¶ 8, 11, 19.)

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