United States of America v. Nauset Construction Corporation et al
Filing
107
Judge Nathaniel M. Gorton: MEMORANDUM AND ORDER entered. For the foregoing reasons, the motion of the third-party defendant, Leidos Engineering, LLC, to dismiss the third-party complaint or, in the alternative, to sever and transfer to the United States District Court for the District of Delaware (Docket No. 75 ) is 1) with respect to the motion to sever and transfer to theDistrict of Delaware, ALLOWED, and2) with respect to the motion to dismiss, DENIED as moot.So ordered.(McDonagh, Christina)
United States District Court
District of Massachusetts
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Plaintiff,
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v.
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NAUSET CONSTRUCTION CORPORATION, )
TRAVELERS CASUALTY AND SURETY
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COMPANY OF AMERICA, and BENHAM
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DESIGN, LLC,
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Defendants.
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BENHAM DESIGN, LLC,
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Third-Party Plaintiff, )
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v.
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LEIDOS ENGINEERING, LLC,
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Third-Party Defendant. )
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UNITED STATES for the use of
D.D.S. INDUSTRIES, INC.,
Civil Action No.
16-12009-NMG
MEMORANDUM & ORDER
GORTON, J.
This case arises out of a Miller Act claim by the United
States “for the use of D.D.S Industries, Inc.” (“D.D.S.
Industries” or “plaintiff”) against a general contractor and its
payment bond surety for services and materials provided on a
federal construction project at the Camp Edwards Unit Training
Equipment Site (“UTES”) in Sandwich, Massachusetts.
Plaintiff
also asserts claims for breach of implied warranty and
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misrepresentations against the engineer on the project as well
as a claim for unfair or deceptive trade practices in violation
of M.G.L. c. 93A against the general contractor and engineer.
Before this Court is the third-party defendant’s motion to
dismiss the third-party complaint for improper service of
process or, in the alternative, to sever and transfer the thirdparty claim to the United States District Court for the District
of Delaware.
I.
Background
A. Facts
The government entered into a contract with defendant
general contractor Nauset Construction Corporation (“Nauset”)
for maintenance, repair and alteration at the Camp Edwards UTES.
Nauset and defendant Travelers Casualty and Surety Company of
America (“Travelers”), as surety, executed a bond as required by
the Miller Act, 40 U.S.C. § 3131 to secure the payment of labor
and materials used in the construction project.
Third-party
defendant Leidos Engineering LLC (“Leidos” or “third-party
defendant”) was the project engineer and as such prepared
certain specifications contained within the bid documents for
the project.
D.D.S. Industries is a heating, ventilation and
air conditioning (“HVAC”) subcontractor that entered into a
subcontract with Nauset to provide labor and material for the
HVAC system on the project.
D.D.S. Industries based its sub-bid
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on information provided by Leidos in the pre-bid project
specifications.
After beginning work on the project, D.D.S. Industries
discovered that Leidos’s pre-bid specifications were
“insufficient, inconsistent and incomplete”.
Those
specifications required D.D.S. Industries to make significant
revisions and modifications to the designs that led to project
delays and additional costs.
D.D.S. Industries claims that, on
the basis of a novation agreement between Leidos and
defendant/third-party plaintiff Benham Design, LLC (“Benham”),
Benham is responsible for the project delays and additional
costs caused by Leidos’s faulty pre-bid specifications.
D.D.S. Industries partially completed the subcontract work
but Nauset has refused to pay for certain work performed.
D.D.S. Industries maintains that Nauset owes it $137,780 plus
interest on late periodic and final payments and costs of
collection.
D.D.S. Industries also asserts various state law
claims against Benham for breach of implied warranty,
misrepresentation and unfair or deceptive trade practices
stemming from Leidos’s deficient pre-bid specifications upon
which plaintiff relied.
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B. Procedural History
In October, 2016, the government on behalf of D.D.S.
Industries filed its original complaint against Nauset and
Travelers.
In January, 2018, plaintiff filed its second amended
complaint adding claims against Leidos for alleged breach of
implied warranty, misrepresentation and unfair or deceptive
trade practices based on the pre-bid specifications.
In
February, 2018, Leidos notified plaintiff that Benham was the
proper party to the lawsuit pursuant to the novation agreement
between Leidos and Benham, whereupon, shortly thereafter,
plaintiff filed its third amended complaint substituting Benham
for Leidos and asserting the same state law claims.
In May, 2018, Benham filed its answer to the third amended
complaint and a third-party complaint against Leidos for
indemnification.
Benham claims that in March, 2016, the Haskell
Company (“Haskell”) and Leidos and certain of its subsidiaries
entered into two interrelated agreements in which Haskell
acquired from Leidos its interest in the subsidiaries and
certain assets.
Under the terms of the first agreement, the
equity purchase agreement, Leidos sold its interest in four
subsidiaries, including Benham, to Haskell.
In the second
agreement, the asset purchase agreement, Haskell purchased
certain assets, properties and rights from Leidos and agreed to
assume certain, but not all, of Leidos’s liabilities.
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Leidos
submits that the latter agreement also contains a forumselection clause.
The asset purchase agreement identified the liabilities
assumed by Haskell, which included not only those liabilities
set forth on the closing balance sheet but also those to be
performed after the closing under the assigned contracts or any
breaches or violations of the assigned contracts before the
closing.
Benham submits that the claims asserted by D.D.S.
Industries do not fall within either class of assumed
liabilities because Leidos’s misconduct with respect to the prebid specifications occurred before the agreements with Haskell.
Benham submits that D.D.S. Industries’s claims are not therefore
assumed liabilities but rather are excluded liabilities under
the terms of the purchase agreement.
Benham further argues that the equity purchase agreement
provides that Leidos will defend, indemnify and hold harmless
Haskell, its affiliates and their respective representatives
from and against any losses resulting from or arising out of any
excluded liability.
Under the terms of the equity purchase
agreement, “an affiliate” includes an entity that is controlled
by Haskell and “a loss” includes judgments against Haskell or
its affiliates.
Benham is an entity controlled by Haskell.
On
the basis of the equity purchase and asset purchase agreements
Benham maintains that Leidos must, therefore, indemnify Benham
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against any judgment resulting from D.D.S. Industries’s claims.
Benham also submits that Leidos has refused to indemnify Benham
and thus has breached its contractual obligation under the two
agreements.
In June, 2018, Leidos filed a motion to dismiss the thirdparty complaint for improper service of process or, in the
alternative, to sever and transfer the third-party claim to the
District of Delaware.
That motion is the subject of this
memorandum.
II.
Motion to Dismiss Third-Party Complaint for Improper
Service of Process or, in the Alternative, to Sever and
Transfer to the District of Delaware
A. Motion to Dismiss for Improper Service
In its motion to dismiss for improper service, Leidos
alleges that Benham attempted to serve it by mailing the summons
and complaint to the Leidos office receptionist who was not
authorized to accept such service.
That method of service of
process allegedly violates federal rules which permit service by
delivering the summons and complaint to an officer, a managing
or general agent or any other agent authorized to receive
service of process or in accordance with the state law of the
state where the district court is located or where service is
made. Fed. R. Civ. P. 4(h), 4(e)(1).
The parties agree, however, that Leidos has since been
properly served and that the only issue now before the Court is
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Leidos’s motion, in the alternative, to sever and transfer
Benham’s third-party claim.
Accordingly, Leidos’s motion to
dismiss for improper service will be denied as moot.
B. Legal Standard for Motion to Sever and Transfer
A district court has the discretion to “strike [a] thirdparty claim, to sever it, or to try it separately.” Fed. R. Civ.
P. 14(a)(4); see also Acevedo-Garcia v. Monroig, 351 F.3d 547,
558 (1st Cir. 2003) (stating that the decision to sever claims
“is a case management determination peculiarly within the
discretion of the trial court” (internal quotation marks
omitted) (quoting Gonzalez-Marin v. Equitable Life Assurance
Soc’y, 845 F.2d 1140, 1145 (1st Cir. 1988))).
In addition,
[f]or the convenience of parties and witnesses, in the
interest of justice, a district court may transfer any
civil action to any other district or division where it
might have been brought or to any district or division to
which all parties have consented.
28 U.S.C. § 1404(a).
The United States Supreme Court has held that a forumselection clause in a contract may be enforced by a motion to
transfer under Section 1404(a) and
[w]hen a defendant files such a motion . . . a district
court should transfer the case unless extraordinary
circumstances unrelated to the convenience of the parties
clearly disfavor a transfer.
Atl. Marine Constr. Co., Inc. v. U.S. Dist. Court for W. Dist.
of Tex., 571 U.S. 49, 52 (2013).
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Indeed, “a valid forum-selection clause [should be] given
controlling weight in all but the most exceptional cases”. Id.
at 63 (alteration in original) (quoting Stewart Org., Inc. v.
Ricoh Corp., 487 U.S. 22, 33 (1988) (Kennedy, J., concurring)).
A district court evaluating a motion to transfer based on a
forum-selection clause “must deem the private-interest factors
to weigh entirely in favor of the preselected forum”. Id. at 64
(explaining that a court evaluating a motion to transfer based
on a forum-selection clause may not consider private interest
factors because the parties have waived any objections to the
pre-selected forum).
In deciding whether to transfer a case based on a forumselection clause, the district court may consider the publicinterest factors which will defeat a transfer motion only in
unusual cases. Id.
Those factors include
the administrative difficulties flowing from court
congestion; the local interest in having localized
controversies decided at home; [and] the interest in having
the trial of a diversity case in a forum that is at home
with the law.
Id. at 62 n.6 (quoting Piper Aircraft Co. v. Reyno, 454 U.S.
235, 241 n.6 (1981)).
The burden of showing that the public-
interest factors overwhelmingly disfavor the requested transfer
rests on the nonmoving party. See id. at 67.
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C. Overview of the Parties’ Arguments
Leidos contends that the equity purchase agreement upon
which Benham relies for its indemnification claim contains a
valid and mandatory forum-selection clause requiring the parties
to litigate any dispute arising out of that agreement in state
or federal court in Delaware.
Based on the Supreme Court’s
decision in Atlantic Marine, Leidos asserts that the forumselection clause is obligatory and thus the third-party claim
should be transferred to the District of Delaware.
In support
of its argument Leidos suggests that all of the public-interest
factors weigh in favor of transfer and there are no exceptional
circumstances to justify denying its motion.
Specifically,
Leidos avers that Delaware is the proper forum because both
Benham and Leidos are limited liability companies organized
under the laws of Delaware and the equity purchase agreement
calls for application of Delaware law in resolving Benham’s
indemnification claim.
Benham rejoins that severance and transfer is inappropriate
despite the forum-selection clause.
Benham asserts that, as the
moving party, Leidos has not met its burden of establishing that
severance of the indemnification claim is appropriate nor has it
addressed any of the factors a court must consider in deciding a
motion to sever.
Benham suggests those factors weigh against a
severance because the indemnification claim arises out of the
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same transaction or occurrence described in D.D.S. Industries’s
complaint and such a severance would not facilitate judicial
economy but simply discourage settlement.
Finally, Benham contends that even if severance of the
third-party claim is appropriate, transfer is not.
It explains
that neither the private-interest factors nor the publicinterest factors weigh in favor of a transfer which would be
antithetical to the policy of judicial efficiency because
Leidos’s third-party claim is so integrally related to the
claims in the underlying complaint.
D. Application
Benham does not contest the validity or the mandate of the
forum-selection clause in its contract with Leidos but only that
Leidos has failed to satisfy its burden of demonstrating that
severance of the claims is proper.
Benham calls upon this Court
to engage in a severance analysis separate and apart from the
transfer analysis under § 1404(a).
But the factors upon which
Benham relies for denial of Leidos’s motion to sever and
transfer are essentially the private-interest factors that the
Supreme Court in Atlantic Marine has specifically proscribed.
Other district courts have concluded that severance is
appropriate when cases are transferred. See Valspar Corp. v.
E.I. DuPont de Nemours & Co., 15 F. Supp. 3d 928, 932 (D. Minn.
2014) (stating that “[i]f the Court were to conclude the
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pertinent factors render transfer appropriate under § 1404(a),
then severance, too, would be proper”); Paduano v. Express
Scripts, Inc., 55 F. Supp. 3d 400, 431-32 (E.D.N.Y. 2014)
(stating that in exercising their discretion to grant a
severance motion, “courts typically consider the same general
factors elucidating the § 1404(a) analysis” and thus will find
that severance is proper if transfer is proper); Monje v. Spin
Master, Inc., No. CV-09-1713, 2013 WL 6498073, at *4 (D. Ariz.
Dec. 11, 2013) (noting that under the circumstances,
“[s]everance is a necessary precursor to . . . transfer, and it
is justified by the same reasoning”).
This District Court finds that where, as here, a motion to
transfer under § 1404(a) is warranted, there is no need for a
separate severance analysis.
Adopting the reasoning of Atlantic
Marine, transfer is proper here because there is a valid forumselection clause in the contract between Benham and Leidos.
Contrary to Benham’s contention, the Court may not consider
private-interest factors because of that clause.
Moreover, Benham has not demonstrated that there are
extraordinary public-interest factors that would disfavor
transfer to the pre-selected forum.
It relies instead upon the
platitude of judicial efficiency to avoid severance and transfer
of a case. See Pinkus v. Sirius XM Radio Inc., 255 F. Supp. 747,
751 (N.D. Ill. 2017) (“[B]ecause [c]onsiderations of judicial
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economy alone do not permit [courts] to ignore a presumptively
valid forum selection clause, a forum selection clause is
enforceable even when invoked by a third-party defendant against
a third-party plaintiff.” (second and third alterations in
original) (internal quotation marks omitted) (citations
omitted)); Glob. Quality Foods, Inc. v. Van Hoekelen
Greenhouses, Inc., No. 16-CV-00920-LB, 2016 WL 4259126, at *5
(N.D. Cal. Aug. 12, 2016) (explaining that the proposition that
a court can always disregard a valid forum-selection clause on
the basis of judicial efficiency concerns is inconsistent with
Atlantic Marine); see also CR Assocs. L.P. v. Sparefoot, Inc.,
No. 17-10551-LTS, 2018 WL 988056, at *5 (D. Mass. Feb. 20, 2018)
(finding that where “public factors . . . are largely neutral,
th[e] case is not among the ‘exceptional cases’ where the forum
selection clause does not control”).
The public-interest factors weigh in favor of enforcing the
valid forum-selection clause in the contract because the thirdparty indemnification claim will be governed by Delaware law.
At the very least, the public-interest factors are neutral with
respect to the appropriate forum for the third-party claim.
Accordingly, Leidos’s motion to sever and transfer the thirdparty claim to the District of Delaware will be allowed.
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ORDER
For the foregoing reasons, the motion of the third-party
defendant, Leidos Engineering, LLC, to dismiss the third-party
complaint or, in the alternative, to sever and transfer to the
United States District Court for the District of Delaware
(Docket No. 75) is
1) with respect to the motion to sever and transfer to the
District of Delaware, ALLOWED, and
2) with respect to the motion to dismiss, DENIED as moot.
So ordered.
_/s/_Nathaniel M. Gorton_____
Nathaniel M. Gorton
United States District Judge
Dated October 25, 2018
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