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HRH CONSTRUCTION, LLC. v. FIDELITY AND GUARANTY INS. CO.

July 8, 2005.

HRH CONSTRUCTION, LLC, Plaintiff,
v.
FIDELITY AND GUARANTY INSURANCE COMPANY, Defendant. FIDELITY AND GUARANTY INSURANCE COMPANY, Third-Party Plaintiff, v. TRES, INC., et al., Third-Party Defendants. TRES, INC., Counter-claimant, v. FEDERAL INSURANCE COMPANY, Additional Defendant on Counterclaim.



The opinion of the court was delivered by: P. KEVIN CASTEL, District Judge

MEMORANDUM AND ORDER

Plaintiff HRH Construction, Inc. ("HRH") was the general contractor on a construction project at 1400 Fifth Avenue, New York, New York (the "Project") and third-party defendant Tres, Inc. ("Tres") was the subcontractor for carpentry and drywall work on the Project. This action was commenced as a suit by HRH against Federal Guaranty Insurance Company ("FGIC"), the surety to Tres, who HRH had alleged was in default in the performance of its work on the Project. FGIC's obligations to HRH as surety for Tres were set forth in a performance bond and a payment bond, each in the face amount of $3,391,000. In a General Agreement of Indemnity, dated September 18, 2002 (the "Indemnity Agreement"), Tres and third-party defendants, Anthony Iarrobino, Anthonina I. Iarrobino, Nancy J. McKane and Warren L. McKane (the "Individual Indemnitors") agreed to hold FGIC harmless for sums paid under the bonds.

During the pendency of this action, FGIC settled with HRH, paying it a sum of money in full satisfaction of its obligations under the performance bond. As part of the settlement, FGIC, in its capacity as Tres's surety, gave HRH a release of any claims by Tres and the Individual Indemnitors.

  In its third-party action, FGIC seeks to recover against Tres and the Individual Indemnitors amounts paid in satisfying its obligations under the payment and performance bond, pursuant to the Indemnity Agreement and common law principles of indemnity and suretyship. Tres and the Individual Indemnitors have asserted claims against HRH and its surety, Federal Insurance Company ("FIC"), for, inter alia, breach of contract and wrongful termination, and seeks to file an amended answer and a counterclaim against FGIC to assert a claim of a bad faith settlement of the claims by FGIC.

  Plaintiff HRH has moved under Rule 56(b), Fed.R.Civ.P., for summary judgment dismissing the claims of Tres and the Individual Indemnitors. HRH asserts that any claims asserted by Tres and the Individual Indemnitors against HRH and FIC have been released by operation of the May 23, 2005 settlement agreement between HRH and FGIC. FGIC also moves to dismiss the claims of Tres and the Individual Indemnitors against HRH and FIC, asserting that because, under the terms of the Indemnity Agreement, any such claims were assigned to FGIC, Tres and the Individual Indemnitors are no longer the real parties in interest, and FGIC therefore was empowered to enter into the settlement agreement and release the claims. FGIC also has moved for summary judgment on its claim for indemnification, seeking to recover from Tres and the Individual Indemnitors all amounts paid by FGIC pursuant to the bonds, and for related expenses arising out its obligations thereunder. The amounts sought by FGIC include those paid in settlement of the HRH lawsuit.

  The Court heard oral argument on the pending motions on June 22, 2005. For the reasons set forth herein, HRH's motion for summary judgment dismissing the claims of Tres and the Individual Indemnitors is granted. FGIC's motion for summary judgment on its claim for indemnification is granted. Tres's motion to file a second amended answer and a counterclaim against FGIC is denied as futile.

  Background

  During the course of the Project, a dispute arose between HRH and Tres over the level of staffing of carpenters and HRH's payments to Tres for the work being performed. In this dispute, HRH and Tres each assigned varying degrees of fault and responsibility to the other. Tres does not dispute that on October 30, 2003, HRH gave notice to Tres that it was in default under the HRH-Tres contract, and that Tres had 48 hours to cure the default. Because the performance bond was implicated, HRH also placed FGIC on notice of the default. Tres asserts that HRH's declaration of default and subsequent termination was improper. But it does not dispute that the circumstance identified in the notice of default was not cured and that by letter dated November 19, 2003, HRH gave notice that it was terminating the HRH-Tres contract and demanding that FGIC meet its obligations under the performance bond. Tres does not dispute that it did not supply workers to the Project after October 30, 2003, although it does assert that some of the workers who Tres had employed on the Project continued on the job on HRH's payroll.

  Following an initial investigation of the termination of the contract and the costs to complete the Project, FGIC tendered the sum of $752,972 to HRH, which FGIC contended satisfied its obligations under the performance bond. HRH accepted the payment, but advised FGIC that it viewed the payment as only partial satisfaction of FGIC's liability under the bond. After further discussions with FGIC, HRH filed this action seeking a total of $3,185,077, the face amount of the performance bond, less the amount already paid to HRH by FGIC, plus interest. Pursuant to the terms of the Indemnity Agreement, FGIC commenced a third-party action against Tres and the Individual Indemnitors to recover all sums paid in satisfaction of the performance and payment bonds, as well as all other costs incurred by FGIC as a result of its suretyship, including the costs related to its investigation of HRH's claims, the costs incurred in the main action brought by HRH and the costs of enforcing the terms of the Indemnity Agreement.*fn1

  Pursuant to a May 23, 2005 settlement and compromise agreement (the "Settlement Agreement"), FGIC agreed to pay HRH a total of $1,915,000 in full and final settlement of HRH's claims in this action. FGIC and HRH each agreed to release the other from any claims arising from the Project, the related contract and the performance bond, including all claims asserted in this action. The Settlement Agreement also recites that FGIC, pursuant to rights accorded to it in the Indemnity Agreement, releases HRH from all claims asserted by Tres or any other third-party defendant that arise from the Project, the related contract and the performance bond, including all claims and counterclaims asserted by Tres in this action. Also covered by the terms of the release was defendant FIC, the surety for HRH. Under the Settlement Agreement, HRH and FGIC also agreed that they would enter into a stipulation and proposed order dismissing the main action between them with prejudice and seek to sever FGIC's third-party action. (No such order has been submitted to the Court.)

  Discussion

  Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c). A fact is material if it "might affect the outcome of the suit under the governing law. . . ." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id. The Court must "view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor, and may grant summary judgment only when no reasonable trier of fact could find in favor of the nonmoving party." Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (citation and quotation marks omitted); accord Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88 (1986). However, when the moving party has asserted facts to demonstrate that the non-moving party's claim cannot be sustained, the opposing party 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 asserted by the movant. Rule 56(e).

  Tres & the Individual Indemnitors' Claim Against HRH & FIC

  The Indemnity Agreement gives FGIC sweeping rights in the event a claim is made against it on the performance bond. It provides for the assignment of any claims that Tres and the Individual Indemnitors may have against the claiming party and designates FGIC as their attorney-in-fact with broad powers. Thus, paragraph 7 of the Indemnity Agreement provides that FGIC "may settle or compromise any claim, liability, demand, suit or judgment upon any BOND or BONDs executed or procured by it, and any such settlement or compromise shall be binding upon [the indemnitors]. Vouchers or other evidence of payments made by [FGIC] shall be prima facie evidence of the fact and amount of the liability" of the indemnitors to FGIC. Tres and the Individual Indemnitors also assigned and transferred to FGIC, inter alia, all "collateral," which is defined to include all "causes of action (whether in contract, tort or otherwise)" belonging to them as well as "all subcontracts . . . and all Surety Bonds securing the performance of, of the discharge of obligations incurred in connection with such subcontracts." Indemnity Agreement ¶ 10(a)(i), (vii) & ¶ 12. The Indemnity Agreement provides that "[t]he assignment is for the purpose of enabling [FGIC] . . . to use any COLLATERAL upon the happening of an ...


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