United States District Court, N.D. New York
March 29, 2004.
FIRST NATIONAL INSURANCE COMPANY OF AMERICA, Plaintiff
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.
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.
[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. . . .
Any one or combination of the following: SAFECO . . .
First National Insurance Company of America. . . .
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. . . .
(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 conclusory
allegations, unsupported by the record, are insufficient to
defeat a motion for summary judgment. See Carey v. Crescenzi,
923 F.2d 18, 21 (2d Cir. 1991).
B. Indemnification Agreements
Defendants attack this Motion for Summary Judgment with
everything they can muster. In addition to contending that there
may exist genuine issues of facts as to various aspects of the
Agreement and Plaintiff's acts and decisions in completing these
contracts, Defendants assert that this Court has neither subject
matter nor personal jurisdiction over this matter and that the
Amended Complaint should be dismissed. Dkt. Nos. 34, 37, 38 & 41.
The Defendants fail on all accounts. The challenges that they
mount to certain events do not pose a genuine issue of fact,
their complaints are merely conclusory and lastly, the facts and
the law Defendants argue are taken out of context and misplaced.
Thus they do not provide substantive and substantial arguments to
avoid the evitable granting of this Motion for Summary Judgment.
First and foremost, the most critical flaw in the Defendants'
last-minute argument against Summary Judgment, which cuts to the
heart of all of their other assertions and contentions, is that
this Court does not have either subject matter or personal
jurisdiction of this claim because the labor and material bonds
have a clause that reads "the place of trial of any action on
this Bond shall be in the county in which the said Contract was
to be performed . . ." Dkt. No. 40, Ex. 2. If the Court were to
follow Defendants' logic, since the Town of Schaghticoke is
located in Rensselaer County in the State of New York, Plaintiff should have
brought this action in New York State Supreme Court venue in
Rensselaer County rather than here. The critical error in
Defendants' reasoning is this: this lawsuit was not brought under
the performance and labor and material bonds. To the contrary,
the Plaintiff brought this action pursuant to the June 30, 1998
General Agreement of Indemnity. Contrary to Defendants'
underlying postulations, performance and labor and material bonds
are agreements to protect the owners and the subcontractors of a
construction project, and, in this case, such owner would be the
Town. See Gen. Accident Ins. Co. of Am. v. Merritt-Meridian
Constr. Corp., 975 F. Supp. 511, 516 (S.D.N.Y. 1997) (wherein
the court found " the performance bonds were expressly entered
into for the benefit of the owners."). Whereas, indemnity
agreements, which are essential components to underwriting and
providing economic assurances to such projects, protect the
surety. Id. at 516 (Sureties serve "[an] important function in
the construction industry" by providing to all of the parties to
a "typical construction contract owners, general contractors,
subcontractors" "assurance that defaults by any of the myriad
other parties involved will not result in a loss to them.").
Indemnity agreements, much like the agreement in our case, are
valid and enforceable under New York law, and when a general
contractor has agreed to indemnify the surety from any losses
that may arise from contractor's default or claims arising out of
surety bonds, such agreements fundamentally govern the
relationship between the surety and contractor. Gen. Accident v.
Merritt-Meridian, 975 F. Supp. at 515-16 (citing, inter alia,
Int'l Fid. Ins. Co., v. Spadafina, 192 A.D.2d 637, 596 N.Y.S.2d 453
(N.Y. App. Div.2d Dep't 1993) and BIB Constr. Co., Inc., v.
Fireman's Ins. Co. of Newark, New Jersey, 214 A.D.2d 521, 523-25
625 N.Y.S.2d 550 (N.Y. App. Div 1st Dept. 1995)); see also
North Am. Specialty Ins. Co., v. Montco Constr. Co., Inc., 2003 WL 21383231, at *5 (S.D.N.Y. May 9, 2003).
Contractors and sureties like any other party to a contract are
"free to fashion terms of their agreement" that meet their
respective needs and obligations and to solidify their
contractual relationships. Lori-Kay Golf, Inc., v. Lassner,
61 N.Y.2d 722, 723, 472 N.Y.S.2d 612, 613 (NY. Ct. App. 1984). In
this vein, a party, in order to receive a contractual benefit,
can abandon rights and bestow them upon the other party (i.e.,
assignments of rights, options to proceed, determinations of cost
and the reasonableness, settlement clause thereof). But to be
certain in any event, a surety, in the final analysis, is
"equitably entitled to full indemnity against the consequences of
a principal obligor's default." Id. at 723, 472 N.Y.S.2d at
613; Bank of New York v. Hirschfeld, 59 A.D.2d 976,
399 N.Y.S.2d 399 (N.Y. App. Div 3d Dep't), appeal dismissed
44 N.Y.2d 732 (1978).
Where the surety provides a bond to the owner of a construction
project on behalf of the contractor and said owner determines
that the contractor has defaulted and demands the surety,
pursuant to the terms of the bond, to fulfill the contractor's
obligations, the surety, generally speaking, is obligated to
comply regardless of the surety's belief as to what occurred or
caused the claim of default. Gen. Ins. Co. of Am. v. Capolino
Constr. Corp., 908 F. Supp. 197, 199 (S.D.N.Y. 1995); see also
Gen. Accident Ins. v. Merritt-Meridian, 975 F. Supp. at 516
(owners' claims of default invoke indemnification agreements and
the settlement of claims). Within these types of contracts,
sureties are provided discretion and latitude to take whatever
action necessary to settle claims and to complete the work at
hand Gen. Accident Ins. v. Merritt-Meridian, 975 F. Supp. at
516. As long as the surety acts in good faith in assuming the
remaining contractual obligations and pay construction expenses
accordingly, whether the contractor actually defaulted will
neither affect the surety's right to be indemnified for expenses
paid nor defeat the surety's motion for summary judgment. Gen. Ins. v. Capolino,
908 F. Supp. at 199; Int'l Fid. Co. v. Spadafina, 192 A.D.2d at 639,
596 N.Y.S.2d at 454-55 (It is irrelevant whether the contractor
was actually liable). Absent bad faith, fraud or extravagance,
the surety is entitled to pay the actual costs incurred in
completing the construction project and then be provided
indemnification pursuant to the agreement. BIB Constr. Co. v.
Fireman's Ins., 214 A.D.2d at 525, 625 N.Y.S.2d at 553; Int'l
Fid. v. Spadafina, 192 A.D.2d at 639, 596 N.Y.S.2d at 454
(citing Maryland Cas. Co. v. Grace, 292 N.Y. 194, 54 N.E.2d 363
(1944) (for the proposition that any payment made by sureties
under the provisions of an indemnity agreement are scrutinized
only for good faith and reasonableness as to the amount of the
As long as the indemnity agreement is unambiguous, a court must
give effect to the express terms contained therein and such
interpretation is a matter of law which may be determined on a
motion for summary judgment. North Am. Specialty Ins. Co., v.
Montco Constr. Co., Inc., 2003 WL 21383231, at *5. Disputes
whether the contractor defaulted on his obligation or conclusory
allegations of surety acting in bad faith are insufficient to
defeat a motion for summary judgment. Id.; see also Gen.
Accident Ins. v. Merritt-Meridian, 975 F. Supp. at 518; Gen.
Ins. v. Capolino, 908 F. Supp. at 199.
In our case, as made evidently clear above, the Plaintiff is
certainly the surety capable of enforcing the indemnity agreement
and there is no genuine issue of fact, notwithstanding Defendants
attempts to plead ignorance of actual facts. Unmistakenly, First
National is identified as an affiliate of SAFECO Insurance
Companies, and in such a capacity can initiate this lawsuit. In
further support of this litigation status, explicitly noted as
surety on the performance and labor and materials bond is First National. Dkt. No. 31, Ex. 2; Dkt. No.
Complaining that the surety did little to defend the Defendants
on the owner's claim that they defaulted is meritless and
meaningless. Opposing their termination was not a contractual
obligation assumed by the Plaintiff but could have been an option
if the Plaintiff so elected. It did not however. Plaintiff's
election could have been guided by several letters raising the
issue of the Defendants' questionable performance, and as of June
4, 2000, the Town declared the Defendants in default and demanded
that the Plaintiff honor the terms of the bonds, which they did.
Then, under this indemnity agreement, the Plaintiff did not have
to defend the Defendants in any manner to meet the obligations
foisted upon it due to the declaration of default, and, under the
terms of the bonds, Plaintiff was left with very few options
regarding the owner's demands. Unquestionably, the Agreement,
which the Defendants agreed to in 1998, gave the Plaintiff the
exclusive right to settle claims and pursue the completion of
the work projects as long as it was done in good faith. To
solidify this exclusive right, the Agreement unequivocally states
that such determinations by the Plaintiff shall be prima facie
evidence of the facts, and that the Plaintiff may take whatever
course of action deemed necessary. Nothing that the Defendants
have asserted rise to the level of bad faith, fraud or
extravagance, and, thus, on this issue has failed to raise a
genuine issue of fact. North Am. v. Montco, 2003 WL 2138321, at
*5. Similarly, the Defendants complain vociferously that they did
not owe the subcontractor, Best Paving, $147,509 at the time the Plaintiff assumed responsibility for
completing the project.*fn5 Within the same context, the
Plaintiff's settlement of this subcontractor's claims falls under
the authority granted under the Agreement to resolve claims in
good faith. More to the point, the Plaintiff hired a consultant
to assist them in investigating the reasonableness of the claims
of Best Paving and other likewise claims, concluded that they
were indeed reasonable and accurate, and paid them.
This same provision of the Agreement permits the Plaintiff to
settle and accept the sum paid by the Town for the completion of
the project even though Defendants note they were owed
approximately $382,400. In conjunction with the exclusive right
to determine for both parties what and how claims will be paid,
the Defendants, by the Agreement, assigned to the surety all
rights of the Defendants, including monies due and owing them.
With regard to Contract 3P-99 not being bonded and may have been
absorbed into Contract 2-99, the Plaintiff nonetheless paid the
material claims of approximately $59,846. It is of little
particular importance that Contract 3P-99 had no separate
identifiable bonds nor the notion that the Plaintiff expended
monies on "extra or additional" work. The fact that it was paid
in good faith, pursuant to the Plaintiff's express authority to
settle such claims, after determining its reasonableness, will
render the Defendants liable to the Plaintiff's pursuant to the
Agreement. These mentioned steps carried out by the Plaintiff are
the only condition precedents which must be considered,
completed, and incurred before seeking indemnification. Thus the
Defendants' conclusory charge of negligence, gross incompetence, and misfeasance, by First National when it
paid or resolved all of the corresponding claims of this work
project holds no sway with the Court nor rises to the level of a
deterring us from concluding that no material issue of fact
exists in this respect as well.
Defendants' obtuse reasoning suggests that subject matter
jurisdiction of this lawsuit is divested by virtue of a provision
within the related labor and material bonds, which states that
the venue of any litigation as to their terms shall be held in
Rensselaer County. As we have made rather evident, this lawsuit
does not arise from the material bonds, which exist to protect
the owner of the project and the subcontractors, but, directly to
the point, comes to the Court solely because of the Indemnity
Agreement. In that sense, the Agreement fails to denote any
particular venue. The position Defendants take on subject matter
jurisdiction is that the indemnification agreement and the
performance and material bonds must be read together, or in other
words, the Agreement is dependent upon the terms of the bonds.
As a general proposition, two separate written agreements
executed at the same time may be considered in law as one
agreement but only if the parties intended such a merger of terms
and concepts and desired interdependence. Nat. Union Fire Ins.,
Co of Pittsburgh Pa. v. Turtur, 892 F.2d 199, 204 (2d Cir.
1989). Generally, the issues of intent and interdependence are
issues of fact (Turtur, 892 F.2d at 204) but such dependency
can be decided as a matter of law (Clarke v. Max Advisors, LLC,
235 F. Supp.2d 130, 146 (N.D.N.Y. 2002). This doctrine of
dependent contracts is not applicable to our case. First, the
Indemnity Agreement and the bonds were not entered into
contemporaneously and stand more than a year apart. Kurz v.
United States of Am., 156 F. Supp. 99, 104 (S.D.N.Y. 1957)
(stating the test is flexible and that a finding of being
contemporary means being executed substantially at the same
time.). Nor was it contemplated that these two separate agreements were to be interdependent
except that the event of the contractor's defaulting on the
provisions of the bonds triggering the surety to complete the
project and pay the corresponding expenses provided the surety
with the right to seek indemnification. Defendants' reliance upon
Gen. Ins. Co. of Am. v. Capolino, 908 F. Supp. 197 (S.D.N.Y.
1995) is misplaced. To make it absolutely certain what are the
parties' rights under an indemnification agreement, General
Insurance v. Capolino advisedly addressed,
the effect of a provision in an indemnity agreement
between a surety and a contractor that [which]
permitted the surety to recover for expenses incurred
in response to an owner's claim under a performance
bond whether or not the contractor had actually
breached the underlying contract. See Fidelity &
Deposit Co. v. Bristol Steel & Iron Works, Inc.,
722 F.2d 1160, 1163 (4th Cir. 1983); Bib Construction
Co. v. Fireman's Insur. Co., 214 A.D.2d 521,
625 N.Y.S.2d 550, 552-53 (1995); International Fidelity
Insur. Co. v. Spadafina, 192 A.D.2d 637,
596 N.Y.S.2d 453, 454 (1993). Each of those cases held
that the surety could recover its expenses regardless
of whether the contractor was actually in default of
the underlying contract, so long as the surety acted
in good faith. The indemnity agreement between
Capolino and General is similar: it states that
General is entitled to recover expenses incurred in
good faith in response to a demand by an owner under
a performance bond if the owner has declared Capolino
in default. See General Agreement of Indemnity for
Contractors, attached as Exhibit 2 to Affidavit of
Wendy Ling, dated May, 5, 1995. Accordingly, as we
discussed in our opinion, Capolino may not defeat
General's summary judgment motion by arguing that an
issue of fact exists concerning whether Capolino was
actually in default.
908 F. Supp. at199 (emphasis added).
Nonetheless, the Capolino court was grappling with the fact
that the surety was concerned about the owner's default, and
under that circumstance, had to look at the terms of the
performance bond. Because of the allegations that the owner was
in default, it was unclear that the surety, under that
circumstance, was required to complete the construction
contracts. Invariably then the court had to look to the
performance bonds, and, upon that review, the court discerned
that according to the terms of the performance bonds the surety
was only required to comply with the owner's demand to complete
the project only if there was no owner default. Such was the lingering issue of fact, narrowly defining the breadth of
Capolino. Id. at 199. In that respect, our case is obviously
distinguishable inasmuch as there is no allegation of the Town of
Schaghticoke defaulting on the construction contract.
Similarly, the Defendants' reliance on Kurz v. United States
is misapprehended. 156 F. Supp. 99 (S.D.N.Y. 1957). In Kurz,
the court had to deal with provisions in a separation agreement
that established a trust and whether the subsequent trust was
meant to be revocable or irrevocable. The issue posed was: where
the terms of a separation agreement required the execution of a
subsequent trust instrument, must the power of revocation, to be
effective, be provided for in the separation agreement or can
such a power be valid if it is reserved in the trust instrument.
Id. at 103. In this regard, the court found the doctrine of
dependent contracts applicable. Both instruments were executed
within a relative close duration, six weeks, and in order to make
the construction of both documents reasonable and effective, they
were viewed as forming one single transaction and read together
to effectuate the parties intent. Id. at 103-04 (citing among
others Nau v. Vulcan Rail & Constr. Co., 286 N.Y. 188, 197
(1941). Such an interdependence between separate instruments, was
neither intended nor needed here. In the present case, the
Plaintiff's right to indemnification, clearly set forth in the
Agreement, is not so dependent upon the provisions of the bonds
and was not intended to be so. Indubitably, the Plaintiff's right
to indemnification, with all of its features, is tightly secured
within the Agreement. The only events that needed to occur before
Plaintiff could seek indemnity from the Defendants was to incur
all related costs in completing the construction project where
the Defendants have been declared by the owner to be in default.
Lori-Kay Golf, 61 N.Y.2d at 723, 472 N.Y.S.2d at 613 (a surety
is legally and equitably entitled to full indemnity against the consequence of a contractor's default); Int'l Fid. Ins. Co. v.
Spadafina, 192 A.D.2d at 639 (liability under the bonded
contract is irrelevant to the contractor's obligation to
indemnify the surety). The parties did not intend to look to the
material bonds to set the venue for the Plaintiff to pursue the
Defendants for reimbursement for the monies expended.*fn6
Gen. Accident Ins. Co. v. Merritt-Meridian, 975 F. Supp. at
517-18 (standing for the proposition that the relationship of
surety and contractor is set forth in the indemnification
agreement and not the performance bond).
Defendants further contend that there is no jurisdiction
because diversity of citizenship is lacking. 28 U.S.C. § 1332. To
support this notion, Defendants' posit that the Plaintiff, who
has a "multitude" of agents and representatives operating in New
York state and doing a substantial amount of business therein,
must be deemed a citizen of New York for the purpose of
establishing diversity jurisdiction. Dkt. No. 38, Point II. The
only principle the parties will agree upon is that the Second
Circuit has recognized two primary tests in terms of determining
It is well-settled that there are two general tests
that courts apply to determine a corporation's
principal place of business and that which test the
court should use "depends on the structure and nature
of the corporation." See Peters v. Timespan Comms.
Inc., No. 97 Civ. 8750(DC), 1999 WL 135231, at *5
(S.D.N.Y. Mar.12, 1999); see also R.G. Barry Corp.
v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir.
1979). Under the so-called "nerve-center test,"
"[w]here corporate operations are spread across
numerous states, courts have tended to emphasize
those factors that identify the place where overall
corporate policy originates" R.G. Barry Corp., 612
F.2d at 655. "[T]he principal place of business of a
far-flung corporate enterprise is `the nerve center
from which it radiates out to its constituent parts
and from which its officers direct, control and coordinate all
activities without regard to locale, in the
furtherance of the corporate objective.'" Id. The
second test is commonly called the
"bulk-of-activities test" or the "place-of-operations
test," and is generally used when the corporation's
operations are centralized. See R.G. Barry Corp.,
612 F.2d at 655. Under this test, courts "deemphasize
the concentration on the corporate `nerve center' and
 focus instead upon the state in which a corporation
has its most extensive contacts with, or greatest
impact on, the general public." R.G. Barry Corp.,
612 F.2d at 655.
Sterling Fifth Assoc. v. Carpentile Corp., Inc., 2003 WL
22227960, at *3 (S.D.N.Y. Sept. 26, 2003).
Another point the parties will agree upon is that the most
appropriate of the two tests this Court should consider is the
"nerve center" test. If the Court applies the "nerve center" test
as to whether the Plaintiff is an out of state corporation for
the purposes of diversity, the Plaintiff has met their burden.
Rod Williams, an Assistant Vice President for First National,
establishes to the Court's satisfaction that (1) it was
incorporated in the state of Washington; (2) its principal place
of business is located outside Seattle, Washington and that all
of the principal officers of this corporation work in the state
of Washington; and (3) all claims, accounting and financial
functions, major policy, business and management decisions,
research and development, advertising and public relations occur
within locations within the state of Washington. Dkt. No. 39, Rod
Williams, Aff., dated Jan. 27, 2004, at ¶¶ 2-6; Ex. 1
(certificate of incorporation dated January 1929 and certificate
of good standing from the State of Washington). Further, Mr.
Williams avers that, even though the Plaintiff uses independent
brokers and agents in New York, none have the authority to bind
the Plaintiff. Id. at ¶ 8. Lastly, the Plaintiff has only one
office located in Syracuse, New York, with one employee
performing sales and marketing operations and who has no
authority to bind the Plaintiff. Id. at ¶¶ 7 & 8. All of the
above substantiates, pursuant to the "nerve center" test, that
the state of Washington is the Plaintiff's location for purposes
of diversity. Defendants admit that they are citizens of New
York. Axiomatically then, diversity of citizenship has been established, especially in
light of the fact that Defendants have not come forward with any
facts to refute Mr. Williams' averments, and thus cannot prevail
on this point.
Finally, the Court notes that there does not exist an issue of
fact that the Plaintiff cannot collect reasonable attorney fees,
costs, and other consulting costs under the Agreement. These
types of costs are expected when a surety exercises its exclusive
right to seek indemnification. United States Fid. & Guar. Co. v.
Sequip Participacoes, S.A., 2003 WL 22743430, at *7, 10 & 11
(S.D.N.Y. Nov. 19, 2003); see also Lori-Kay Golf, 61 N.Y.2d at
723, 472 N.Y.S.2d at 613 (attorney fees); Int'l Fid. Ins. Co. v.
Spadafina, 192 A.D.2d at 639, 596 N.Y.S.2d at 455 (citing
Winegard v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853,
487 N.Y.S.2d 316, 317-18 (N.Y. Ct. App. 1985)) (attorney fees and
legal costs); Bank of New York v. Hirschfeld, 59 A.D.2d 976,
399 N.Y.S.2d 399 (N.Y. App. Div.3d Dep't 1977) (finding
entitlement to attorney fees expended in securing reimbursement
from obligor). The Plaintiff has well documented each and every
expense they have incurred. We have, therefore, carefully
scrutinized all of the Plaintiff's documentation in support of
each of the requested fees and expenses and we concluded that
they were incurred and reasonable. See Dkt. No. 32, Sean P.
Kelly, Esq., Aff., dated Oct. 20, 2003. Ironically, the
Defendants do not object to these fees as uncollectible,
unreasonable, or should "shock the conscience" of the Court. Dkt.
No. 34. Therefore, all of the attorney fees, including the fees,
to prepare, submit, and defend this Motion, as well as other
costs and consulting fees, shall be awarded for a grand total of
$20,235. See supra note 3.
Defendants fail to raise any factual question whatsoever
concerning their obligation to indemnify the surety under the Agreement. Paradoxically, they
have acknowledged that obligation. Moreover, Defendants have
expressly agreed to unambiguous terms giving the Plaintiff every
conceivable right, even by assignments, to even pursue them by
litigation in order to be made whole on assuming all of the
possible consequences of their default. Dkt. No. 31, Ex. 1
(Indemnity Agreement). Since there is no genuine issue of fact
present, but only a question of law, this case can be properly
resolved by a summary judgment motion. Defendants' other
allegations are equally insufficient to derail a summary judgment
against them. Based upon all of the foregoing, it is hereby
ORDERED, that the Plaintiff's Motion for Summary Judgment
(Dkt. No. 21) is GRANTED in its entirety; and it is further
ORDERED, that the Defendants' Cross Motion to Dismiss Amended
Complaint (Dkt. No. 37) is DENIED on all grounds; and it is
ORDERED, that the Clerk of the Court enter a Judgment on
behalf of the Plaintiff against all Defendants, jointly and
severally, in the amount of $166,870.41, plus any further court
costs. Further, Plaintiff shall be entitled to post judgment
interest as calculated pursuant to 28 U.S.C. § 1961(a).
IT IS SO ORDERED.