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FIRST NATIONAL INS. CO. v. JOSEPH R. WUNDERLICH

March 29, 2004.

FIRST NATIONAL INSURANCE COMPANY OF AMERICA, Plaintiff
v.
JOSEPH R. WUNDERLICH, INC, JOSEPH WUNDERLICH AND JEAN WUNDERLICH Defendants.



The opinion of the court was delivered by: RANDOLPH TREECE, Magistrate Judge

MEMORANDUM DECISION AND ORDER*fn1

Originally, the Plaintiff had moved for summary judgment against the Defendants, pursuant to FED. R. CIV. P. 56(a), based upon an indemnification agreement. Dkt. Nos. 21-23. At the time of the Motion for Summary Judgment, the Court had before it a Complaint which was premised upon a indemnification agreement and a single construction contract (Contract 1-99) of which it is alleged that the Defendants' had defaulted causing the Plaintiff to assume responsibility to complete the contract and incur expenses. Dkt. No. 1, Compl. Such reliance was in error because the Plaintiff's damages actually arose out of three, not one, construction contracts, albeit the contracts are inextricably related and the Plaintiff is suing Defendants on this specific indemnification agreement. Id. Once this error in the Complaint was revealed by Defendants' opposition to the Summary Judgment Motion, the Plaintiff readily acknowledged this inadvertence and asked, in the alternative, to amend its Complaint so that it accurately reflect the true events and confirms the facts set forth in the statements of facts. The Court was prepared to address the Motion for Summary Judgment but deferred and accepted the more cautious route of permitting the Plaintiff to amend its Complaint and further supplement the request for damages by providing an appropriately detailed affidavit for attorney fees and costs. Dkt. No. 30, Order, dated Sept. 30, 2003.

  Plaintiff complied with the Court's directive and submitted an Amended Complaint that identifies the two underlying contracts (1-99 & 2-99). Dkt. No. 31, Am. Compl. An Amended Answer ensued shortly thereafter (Dkt. No. 33), however, the next turn in this litigation was quite unexpected. Since the Defendants initially raised the issue of factual deficiencies in the Complaint compelling an amendment thereto which was ultimately completed as requested, one would have expected that the Court would quickly return to the original Motion for Summary Judgment and decide the Motion, notwithstanding the Court's observation in the order that by inviting the filing of an amended complaint that the parties would not lose any remedies or challenges. Dkt. No. 30. It then came as quite a surprise when the Defendants filed a Motion to Dismiss the Amended Complaint based upon both personal and subject matter jurisdiction which had not been previously raised. Dkt. No. 37 & 38. Surprise notwithstanding, the Court will not consider these two dispositive Motions independently but rather interdependently. Judicial economy requires us to do so, therefore, the Defendants' Motion to Dismiss will be viewed in the context of the Motion for Summary Judgment and deemed as the Defendants' Cross Motion to Dismiss and opposition to the initial Motion.*fn2 For all of the reasons stated below, the Plaintiff's Motion for Summary Judgement is Granted and the Defendants' Cross Motion to Dismiss is Denied.

  I. HISTORY

  First National Insurance Company of America is an affiliate of SAFECO Insurance Companies with whom the Defendants, a corporation and two individuals, executed a General Agreement of Indemnity For Contractors (Agreement) on June 30, 1998. Dkt. No. 31, Ex. 1 (the Indemnity Agreement). Because of the nature of the exhaustive list of defenses raised by the Defendants to this Motion for Summary Judgment, implicating various provisions of the Agreement, it is incumbent upon us to reveal, in some detail, the most salient and relevant terms of the Agreement, an agreement which the Defendants agreed upon in order to have this Plaintiff-Surety underwrite performance bonds on their construction contracts.

  (1) Purpose:
[F]or the purpose of indemnifying the SAFECO Insurance Companies from all loss and expense in connection with any Bonds for which any SAFECO Insurance Company now is or hereafter becomes Surety. . . .
(2) Surety:
Any one or combination of the following: SAFECO . . . First National Insurance Company of America. . . .
(3) Default:
Contractor shall be deemed to be in default . . . in the event: (1) Is declared to be in default by the Obligee of any Bond; (2) Actually Breaches or abandons any Contract; (3) Fails to pay . . . claims, bills, or indebtedness incurred in connection with the performance of any contract. . . .
(4) Indemnity:
(1) All loss, costs and expenses . . . including court costs, reasonable attorney fees . . . consultant fees, investigative costs and any other losses, costs or expenses incurred by Surety by reason of having executed any Bond, or incurred by it on account of any Default under this agreement by any of the Undersigned. . . .
(5) With respect to Claims against Surety:
Surety shall have the exclusive right for itself and the Undersigned to determine in good faith whether any claim or suit upon any Bond shall, on the basis of belief of liability, expediency or otherwise, be paid, compromised, defended or appealed. . . . (6) Surety's Remedies in the Event of Default:
(1) Take possession of the work under any and all Contracts and to arrange for its completion by others or by the Obligee of any Bond . . . (4) Take such other action as Surety shall deem necessary to fulfill its obligation under any Bond.
(7) Security to Surety:
(c) Monies due or to become due Contractor on any Contract, including all monies earned or unearned which are unpaid. . . . (d) Any actions, causes of action, claims or demands whatsoever which Contractor may have or acquire. . . .
Dkt. No. 31, Ex. 1.

  On October 18, 1999, Defendants entered into a contract with the Town of Schaghticoke to construct water transmission and distribution main lines along New York State Route 40 (Contract 1-99). Dkt. No. 25, Wunderlich Aff. at ¶ 2; Dkt. No. 28, Sussman Aff. at ¶ 3. This contract had a bid price of $1,588,195 and required performance and labor & material bonds, which were furnished to the Town on November 9, 1999. Dkt. No. 25, Wunderlich Aff., at ¶ 3; Dkt. No. 31, Am. Compl., Ex. 2 (Performance Bond #6024599). Among other things, the parties to these bonds were identified as: (1) the Town as the owner, (2) the Defendants as contractor and (3) First National Insurance Company of America as the surety. Dkt. No. 31, Ex. 2. The overall public work project for the Town was rather large and had other components or stages of construction.

  On January 15, 2000, Defendants entered into another contract with the Town of Schaghticoke for the construction of water transmission and distribution main lines (Contract 2-99) for the stated price of $1,896,196. Dkt. No. 25 at ¶ 3; Dkt. No. 28 at ¶ 3. Likewise, performance and labor & material bonds, identifying the same parties as the previous bonds, were required, which the Defendants furnished to the Town on February 14, 2000. Dkt. No. 25 at ¶ 3; Dkt. No. 41, Ex. 2 (# 6024606). It appears that Contract 1-99 and 2-99 pertain to construction work on different roads (town and state) which would eventually intersect when completed. Additionally, there was another related yet nominal contract between the Town and Defendants which was entered into on or about September 12, 2000, for the sum of $59,568 (Contract 3P-99). Dkt. No. 25 at ¶ 3; Dkt. No. 41 at p. 4. There remains a question whether performance and labor & material bonds were required for Contract 3P-99. With respect to Contract 3P-99, Defendants argued in the alternative that no bonds were either sought or waived, or the Town arbitrarily subsumed this Contract within the parameters of Contract 2-99. Dkt. No. 41 at p. 4; see also Dkt. No. 25 at ¶ 4.

  At some point after all of the bonds were delivered to the Town on the respective contracts, Defendants commenced the work at hand on all of these contracts. Approximately more than a year later, on June 4 and 12, 2001, the Town terminated all of Defendants' contracts, declaring them in default. Dkt. No. 25 at ¶ 5. Initially, the Town forwarded a letter to an agent of the Plaintiff, Rose and Kiernan, Inc., expressing its deep concern about the Defendants' performances on Contracts 1-99 and 2-99. Dkt. No. 31, Am. Compl., Ex. 3, Lt. of Kenneth Runion, Esq., dated Sept. 13, 2000. Approximately nine months later, by a letter dated June 4, 2001, the Town's attorney advised the Plaintiff that "Mr. Wunderlich has failed to perform the contract covered by the [] bond . . . [in that] New York State Department of Transportation revoked the work permit for State Route 40 due to Mr. Wunderlich's failure to properly perform . . . [and further] request[ed] that the surety fully perform and complete the work as provided by [the bond]." Dkt. No. 31, Ex. 4, Kenneth Runion, Esq., Lt., dated June 4, 2001; Dkt. No. 21 at ¶ 9; Dkt. No. 25 at ¶¶ 5-7. Pursuant to the Town's demand, the Plaintiff interceded and assumed the remainder of the work at hand as to all three contracts. Dkt. No. 25 at ¶ 7. The Plaintiff hired Cranbrook Construction and McDonald Engineering to complete and oversee the work under the three contracts. Dkt. No. 25 at ¶¶ 5-8. Further, Plaintiff paid Best Paving Company (Best Paving), a subcontractor, on the outstanding balance due for all three contracts, particularly Contract 3P-99. Dkt. No. 28, Ex. 1. However, Best Paving's all-inclusive invoice for $147,509 does not allocate the cost among the contracts. Dkt. No. 31, Ex. 5. Similarly, neither Cranbrook nor McDonald, due to the nature and sequence of their respective work on these contracts, submitted separate bills or invoices for the work performed on all contracts. Dkt. No. 31, Ex. 6.; Dkt. No. 28 at ¶ 5.

  Through this lawsuit, Plaintiff wishes to recover from Defendants all monies expended to complete the job(s), pay the subcontractor, and collect attorney fees and consultant fees less payments received from the Town upon the completion of the contracts. The consultant fees are due diligence fees incurred in the investigation of the reasonableness of the subcontractors' bills. Total damages claimed by Plaintiff against the Defendants is $166, 870.41.*fn3 Dkt. No. 31, Am. Compl; Dkt No. 32, Aff. of Costs and Fees. II. DISCUSSION

  A. Summary Judgment Standard

  Pursuant to FED. R. CIV. P. 56(c), summary judgment is appropriate only where "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." The moving party bears the burden to demonstrate through "pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any," that there is no genuine issue of material fact. F.D.I.C. v. Giammettei, 34 F.3d 51, 54 (2d Cir. 1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). To defeat a motion for summary judgment, the non-movant must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on "mere allegations or denials" of the facts submitted by the movant. FED. R. CIV. P. 56(e); see also Scott v. Coughlin, 344 F.3d 282, 287 (2d Cir. 2003) ("Conclusory allegations or denials are ordinarily not sufficient to defeat a motion for summary judgment when the moving party has set out a documentary case."); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525-26 (2d Cir. 1994). To that end, sworn statements are "more than mere conclusory allegations subject to disregard . . . they are specific and detailed allegations of fact, made under penalty of perjury, and should be treated as evidence in deciding a summary judgment motion" and the credibility of such statements is better left to a trier of fact. Scott v. Coughlin, 344 F.3d at 289 (citing Colon v. Coughlin, 58 F.3d 865, 872 (2d Cir. 1995) and Flaherty v. Coughlin, 713 F.2d 10, 13 (2d Cir. 1983)).

  When considering a motion for summary judgment, the court must resolve all ambiguities and draw all reasonable inferences in favor of the non-movant. Nora Beverages, Inc. v. Perrier Group of Am., Inc., 164 F.3d 736, 742 (2d Cir. 1998). "[T]he trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are any genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue-resolution." Gallo v. Prudential Residential Servs., Ltd. P'ship, 22 F.3d 1219, 1224 (2d Cir. 1994). Mere ...


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