Turner Construction Company v. American Safety Casualty Insurance Company
Filing
113
MEMORANDUM OPINION AND ORDER GRANTING INTERVENOR-PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDED INTERVENOR COMPLAINT. The Court grants the intervenor-plaintiff's 99 motion for leave to file an amended intervenor complaint. Designer's Specialty Millwork is DIRECTED to file an executed copy of its amended intervenor complaint. Further, the intervenor-defendants are DIRECTED to file any answer or responsive pleading to the amended complaint within 14 days after being served with the amended intervenor complaint. Signed by Senior Judge Frederick P. Stamp, Jr. on 6/16/16. (mh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
TURNER CONSTRUCTION CO.,
Plaintiff,
v.
Civil Action No. 1:15CV83
(STAMP)
AMERICAN SAFETY CASUALTY
INSURANCE COMPANY,
Defendant,
and
UNITED STATES f/u/b/o
DESIGNER’S SPECIALTY CABINET CO.,
d/b/a DESIGNER’S SPECIALTY MILLWORK,
Intervenor-Plaintiff,
v.
TURNER CONSTRUCTION CO.,
TRAVELERS SURETY & CASUALTY
CO. OF AMERICA,
FEDERAL INSURANCE CO.,
THE CONTINENTAL INSURANCE CO.,
FIDELITY & DEPOSIT CO. OF MD,
ZURICH NORTH AMERICAN INSURANCE CO.,
LIBERTY MUTUAL INSURANCE CO. and
ZURICH AMERICAN INSURANCE CO.,
Intervenor-Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING INTERVENOR-PLAINTIFF’S MOTION FOR
LEAVE TO FILE AMENDED INTERVENOR COMPLAINT
The intervenor-plaintiff filed a motion for leave to file an
amended intervenor complaint, seeking to allege additional claims
against the plaintiff-intervenor-defendant.
ECF No. 99.
The
plaintiff-intervenor-defendant filed a response in opposition,
arguing that the amendment would be futile because the intervenorplaintiff’s additional claims are frivolous.
For the following
reasons, the intervenor-plaintiff’s motion is granted.
I.
Background
The plaintiff, Turner Construction Company (“Turner”), entered
into a contract with the Federal Bureau of Investigation (“FBI”) to
build facilities in Clarksburg, West Virginia.
After initially
engaging Institutional Products, Inc. (“Institutional Products”),
in a subcontract to provide millwork, Turner entered into a
subcontract
with
business
Designer’s
as
Designer’s
Specialty
Specialty
Institutional Products.
Cabinet
Millwork
Company
(“DSM”)
to
doing
replace
The defendant, American Safety Casualty
Insurance Company (“ASCIC”), issued a performance bond guaranteeing
DSM’s performance of its subcontract with Turner.
bond
incorporated
by
reference
the
The performance
subcontract,
including
a
provision indemnifying Turner against any increased costs due to a
slow-down or breach of the subcontract.
The subcontract also
allowed Turner to inspect DSM’s work and order that defective work
be redone.
If DSM defaulted, Turner was permitted to complete the
work itself or engage another subcontractor to use DSM’s on-site
equipment and supplies after providing DSM with three days notice.
Turner alleges that DSM defaulted on the subcontract by
improperly
staffing
the
project,
by
providing
late
supplies
deliveries, and by ignoring directions from Turner and the FBI.
2
Turner sent a default notice to DSM and ASCIC.
ASCIC responded,
stating that it did not believe DSM was in default.
Turner then
notified ASCIC of its intent to exercise the alternative completion
clause.
Over
three
days
later,
Turner
engaged
another
subcontractor to complete the project.
Turner filed this civil action against ASCIC to collect under
the indemnification clause of the subcontract as incorporated into
the performance bond. DSM has been permitted to join the action as
an
intervenor-plaintiff,
Casualty
Company
Continental
of
Insurance
with
America,
Turner
and
Federal
Company,
Fidelity
Travelers
Insurance
&
Surety
Company,
Deposit
Company
&
the
of
Maryland, Zurich North American Insurance Company, Liberty Mutual
Insurance
Company,
and
Zurich
American
Insurance
Company
(collectively “the Miller Act Sureties”) named as intervenordefendants.
In its intervenor complaint, DSM alleges that it is
entitled to payment of the Miller Act bonds by the Miller Act
Sureties and to damages for breach of the subcontract by Turner.
Turner
then
filed
a
counterclaim
against
DSM
for
breach
of
contract.
DSM has now filed a motion for leave to file an amended
intervenor complaint.
DSM seeks to add claims against Turner for
fraudulent inducement, common law fraud, and cardinal change to the
subcontract. Turner filed a response in opposition to DSM’s motion
for leave to file the amended intervenor complaint.
3
Turner argues
that the motion should be denied because the amendments would be
futile. Specifically, Turner argues that the additional claims DSM
seeks to allege are frivolous and fail to state claims upon which
relief can be granted.
II.
Applicable Law
Federal Rule of Civil Procedure 15(a)(2) permits a party to
amend its pleading “only with the opposing party’s written consent
or the court’s leave[,] . . . [and] [t]he court should freely give
leave when justice so requires.”
Fed. R. Civ. P. 15(a)(2).
When
a party files a motion for leave to amend its pleading, the court
should deny the party’s motion “only when the amendment would be
prejudicial to the opposing party, there has been bad faith on the
part of the moving party, or the amendment would be futile.”
Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986).
The court should deny leave to amend on the ground of futility only
“when the proposed amendment is clearly insufficient or frivolous
on its face.”
Id. at 510.
III.
Discussion
Turner argues that this Court should deny DSM’s motion for
leave to amend the intervenor complaint because the amendments
would be futile.
allegations
of
Specifically, Turner argues that DSM’s proposed
fraudulent
inducement,
common
law
fraud,
and
cardinal change to the subcontract would be futile because they are
clearly insufficient and are frivolous.
4
Turner also requests a
hearing on this motion.
However, this Court finds that the
parties’ memoranda sufficiently address the issues involved, and
thus Turner’s request for a hearing is denied.
First, DSM’s proposed allegations of fraudulent inducement are
not futile.
Assuming without deciding that West Virginia law
applies to DSM’s non-Miller Act claims against Turner, a plaintiff
may recover in tort for fraudulent inducement where the defendant
made a false promise “without intention of performance by him, for
the fraudulent purpose of putting him in an advantageous position
at the expense of the plaintiff, and [the plaintiff] acted upon
. . . [the promise] to his detriment.”
Traders Bank v. Dils, 704
S.E.2d 691, 696, 695 (W. Va. 2010).
DSM
seeks
to
allege
that
Turner
made
false
affirmative
representations to DSM before it entered into the subcontract
regarding completion dates, payments for engineering costs and
offsite materials, DSM’s liability for liquidated damages, and that
certain onsite storage would be provided to DSM.
DSM also alleges
that Turner purposefully failed to disclose various problems with
the construction project that Turner knew would negatively affect
DSM’s ability to perform at the subcontract price. DSM claims that
it relied on these representations, leading to substantial delays
and
increased
allegations
are
costs
to
DSM,
sufficient
which
Turner
state
a
to
inducement.
5
foresaw.
claim
for
These
fraudulent
However,
inducement
Turner
claim
is
argues
that
frivolous
for
DSM’s
two
proposed
reasons;
fraudulent
because
the
subcontract is fully integrated such that parol evidence would be
excluded,
and
because
DSM’s
allegations
are
factually
false.
However, under West Virginia law, parol evidence will not be
excluded as evidence to show that Turner made false promises to
DSM.
See Traders Bank, 704 S.E.2d 691 at 695-96.
Further, at this
time DSM need not prove its proposed claim to obtain leave to amend
its pleading, but only that its amendments are not brought in bad
faith, will not prejudice another party, and will not be futile.
Johnson, 785 F.2d at 509. Thus, Turner’s factual challenges to the
proposed claim are irrelevant at this time.
Second, DSM’s proposed common law fraud claim will not be
futile.
Under West Virginia law, “[t]he essential elements . . .
[of] fraud are: (1) ‘that the act claimed to be fraudulent was the
act of the defendant or induced by him;’ (2) ‘that it was material
and false;’ (3) ‘that [the] plaintiff relied upon it and was
justified under the circumstances in relying upon it;’ and (4)
‘that he was damaged because he relied upon it.’” Bowens v. Allied
Warehousing Servs., Inc., 729 S.E.2d 845, 852 (W. Va. 2012)
(internal quotation marks omitted).
“In alleging fraud . . ., a
party must state with particularity the circumstances constituting
fraud . . . .
Malice, intent, knowledge, and other conditions of
a person’s mind may be alleged generally.”
6
Fed. R. Civ. P. 9(b).
DSM seeks to allege that Turner misrepresented to DSM its
attempts to obtain payment from the FBI for DSM’s invoices, and
that Turner intentionally delayed properly filing DSM’s invoices
knowing that the FBI would reject them as untimely.
Further, DSM
seeks to allege that Turner failed to properly file several claims
for payment but told DSM that it had and was actively seeking
payment.
DSM also seeks to allege that Turner falsely told DSM to
use the Eichleay formula to calculate damages for its delay claims,
while Turner knew the FBI would reject those claims based on the
use of the Eichleay formula.
Thus, DSM’s proposed allegations
specify particular representations by Turner to DSM that were
materially false, and that DSM relied on these representation to
its detriment.
Turner disputes the facts as alleged by DSM, and argues that
any claim for losses caused by delay should be brought as a breach
of contract claim rather than one for fraud.
Again, Turner’s
factual disputes with DSM’s proposed allegations are irrelevant at
this time.
Further, regardless of whether DSM may seek damages
relating to unpaid delay claims in a breach of contract claim,
DSM’s proposed allegations facially state a claim for fraud, and
this Court finds no reason to preclude the fraud claim at this
time.
Third, DSM’s proposed allegations of a cardinal change claim
would not be futile.
Turner argues that under federal law, the
7
cardinal change doctrine applies only to government contracts where
the government affects a cardinal change in the terms of the
contract, and that the doctrine does not apply to subcontracts to
the prime government contract. DSM argues that courts have applied
the cardinal change doctrine to such subcontracts.
Specifically,
DSM argues that the United States District Court for the District
of Maryland applied the cardinal change doctrine to a subcontract
in Westinghouse Electric Corporation v. The Garrett Corporation,
437 F. Supp. 1301 (D. Md. 1977).
However, there is no clear authority for applying the cardinal
change doctrine to subcontracts. See Centex Constr. v. Acstar Ins.
Co., 448 F. Supp. 2d 679, 715 n.8, 715-16 (E.D. Va. 2006) (finding
no
authority
subcontracts).
for
applying
the
cardinal
change
doctrine
to
But see United States ex rel. Ragghianti Founds.
III, LLC v. Peter R. Brown Constr., Inc., 49 F. Supp. 3d 1031,
1054-57 (M.D. Fla. 2014) (applying both federal and state law in
determining whether there was a cardinal change to a subcontract).
Contrary to DSM’s assertions, the court in Westinghouse applied the
federal cardinal change doctrine only because the subcontract
contained a changes clause “derive[d] from the Armed Services
Procurement Regulations.”
Westinghouse, 437 F. Supp. at 1332-34.
Similarly, it is unclear whether federal law or state law applies
to
subcontracts
to
a
prime
government
contract
regarding
application of the cardinal change doctrine. See Ragghianti, 49 F.
8
Supp.
3d
at
1054-57
(applying
federal
and
state
law
to
subcontractor’s cardinal change claim); Centex, 488 F. Supp. 2d at
715-16 (noting that Virginia state law did not recognize a cause of
action for cardinal change and that the subcontractor failed to
prove a cardinal change claim under federal law); Westinghouse, 437
F. Supp. at 1332-34 (applying the federal cardinal change doctrine
to
a
subcontract
[sub]contract
because
derive[d]
“[t]he
from
the
Changes
Armed
Clause
Services
in
th[e]
Procurement
Regulations”). Regardless, this Court need not conduct a choice of
law analysis at this time, because this Court finds that West
Virginia law also recognizes a cause of action under the cardinal
change doctrine.
See Cochran v. Craig, 106 S.E. 633, 641 (W. Va.
1921) (concluding that a plaintiff may recover damages based on a
“material
alteration
made
in
their
plans
by
the
defendants,
necessitating departure from the contract by the plaintiff, . . .
at great additional expense to him”).
Under either federal or West Virginia law, DSM’s proposed
allegations state a claim under the cardinal change doctrine.
DSM
seeks to allege that Turner imposed additional requirements, added
scope, and new conditions upon DSM that were materially different
that those bargained for in the subcontract.
Specifically, DSM
seeks to allege that Turner failed to disclose various problems
with the construction project that inhibited DSM’s ability to
perform at the subcontract price, that Turner and its other
9
subcontractors caused major delays and interference with DSM’s work
by making many areas of the building unavailable to DSM, and that
Turner denied DSM’s demands for increased payments for changes in
its work.
While Turner argues that these changes and delays were
specifically contemplated by the subcontract, that is a factual
question to be determined at a later date.
IV.
Conclusion
This Court finds that Designer’s Specialty Millwork’s proposed
amended intervenor complaint will not prejudice the parties, is not
being brought in bad faith, and will not be futile.
Accordingly,
Designer’s Specialty Millwork’s motion for leave to file its
amended intervenor complaint (ECF No. 99) is GRANTED.
Designer’s
Specialty Millwork is DIRECTED to file an executed copy of its
amended intervenor complaint and to serve all parties with its
amended intervenor complaint.
Further, the intervenor-defendants
are DIRECTED to file any answer or responsive pleading to the
amended complaint within fourteen days of being served with the
amended intervenor complaint.
See Fed. R. Civ. P. 15(a)(3).
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.
10
DATED:
June 16, 2016
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
11
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?