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First Indemnity of America Insurance Co. v. Shinas

September 30, 2009

FIRST INDEMNITY OF AMERICA INSURANCE COMPANY AND AXA GLOBAL RISKS U.S. INSURANCE COMPANY, PLAINTIFFS,
v.
STAMATIOS SHINAS A/K/A STEVE SHINAS ET AL., DEFENDANTS.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.

OPINION & ORDER

Plaintiffs First Indemnity of America Insurance Company ("FIA") and AXA Global Risks U.S. Insurance Company ("AXA"; collectively, "Plaintiffs") bring this action to recover for losses they sustained on surety bonds issued for construction projects throughout New York State. Defendants are, among others, the contractors on whose behalf the surety bonds were issued, and the individuals who agreed to indemnify Plaintiffs for losses sustained on the bonds.

Plaintiffs move for partial summary judgment on their contractual and common law indemnification claims (Counts X and XI) against those defendants, who, Plaintiffs contend, executed indemnity agreements in favor of Plaintiffs (the "Responding Defendants").*fn1 Plaintiffs also move for summary judgment on all of defendant M. Demetrulacos's counterclaims.*fn2 (D.E. 106.) As set forth below, the Court GRANTS in part and DENIES in part Plaintiffs' motion for summary judgment on their contractual indemnification claim; DENIES Plaintiffs' motion for summary judgment on their common law indemnification claim; and GRANTS Plaintiffs' motion for summary judgment dismissing all of M. Demtrulacos's counterclaims.

More broadly, Plaintiffs in this action allege that Defendants, including several members of the Shinas family, were part of an elaborate scheme to defraud Plaintiffs. Specifically, Plaintiffs allege that Defendants prepared and submitted false financial statements, to obtain bonding capacity far beyond what they otherwise would have been able to secure. (Second. Am. Compl. ¶¶ 2-4.) Plaintiffs also allege that the Defendants succeeded in diverting money away from these bonded projects for their own personal gain. (Id.)

The Shinas Defendants*fn3 here move for summary judgment on all of Plaintiffs' fourteen claims against them (the "Shinas Defendants' motion").*fn4 (D.E. 176.) As set forth below, the Court GRANTS in part and DENIES in part the Shinas Defendants' motion. The Court denies the vast majority of the Shinas Defendants' motion because, among other reasons, the Shinas Defendants' involvement in the alleged fraud remains a disputed question of fact.

FACTUAL BACKGROUND

Unless otherwise noted, the following facts are undisputed and are derived from the parties' Local Rule 56.1 statements, affidavits, and other submissions.

Plaintiffs provided surety bonds for construction projects undertaken by, among others, defendants Cosmos Contracting Corp. ("Cosmos Contracting") and Alasia. Parties protected by these bonds later submitted claims on these bonds to Plaintiffs. Plaintiffs here move for partial summary judgment, requiring the Responding Defendants to indemnify Plaintiffs, pursuant to four different indemnity agreements, for costs Plaintiffs incurred as a result of the claims made on these bonds.

A brief description of those four indemnity agreements, as well as Plaintiffs' losses on the bonds, is set out below.

I. 1996 Indemnity Agreement (GBE and Cosmos Group)

As a condition of providing surety bonds for certain construction projects undertaken by Cosmos Group and GBE, FIA required Cosmos Group and GBE, along with certain of their principals and their wives, to enter into indemnity agreements in favor of FIA.

Accordingly, G. Demtrulacos, individually and as President of Cosmos Group, and G. Shinas, individually and as President of GBE, entered into an Agreement of Indemnity, dated April 29, 1996 (the "1996 Indemnity Agreement") with FIA. The 1996 Agreement refers to (1) FIA as "the Surety"; (2) Cosmos Group and GBE as "the Contractor"; and (3) G. Shinas, S. Shinas, V. Shinas, M. Shinas, G. Demtrulacos, and M. Demetrulacos as "the Indemnitors." (Alongi Aff. Ex. A.)

The 1996 Indemnity Agreement provides, in relevant parts: The Contractor and Indemnitors for themselves, their . . . successors and assigns, jointly and severally, hereby covenant and agree with the Surety, its successors and assigns as follows: . . . . [To] exonerate, indemnify, and keep indemnified the Surety from and against any and all liability for losses and/or expenses of whatsoever kind or nature (including, but not limited to, interest, court costs and counsel fees) and from and against any and all such losses and/or expenses which the Surety may sustain and incur: (1) By reason of having executed or procured the execution of the Bonds, (2) By reason of the failure of the Contractor or Indemnitors to perform or comply with the covenants and conditions of the Agreement or (3) In enforcing any of the covenants and conditions of this Agreement. . . .

In the event of any payment by the Surety the Contractor and Indemnitors further agree . . . the Surety shall be entitled to charge for any and all disbursements made by it in good faith . . . whether or not such liability, necessity or expediency existed; and that vouchers or other evidence of any such payments made by the Surety shall be prima facie evidence of the fact and amount of the liability to the Surety. . . .*fn5 (Alongi Aff. Ex. A (emphasis added).)

At some point in the next year, Cosmos Group ceased active operations. The surety broker who obtained bonds for Cosmos Group pursuant to the 1996 Indemnity Agreement received no further requests to obtain surety bonds on Cosmos Group's behalf. (Page Aff. ¶ 17.)

II. 1997 Indemnity Agreement (Cosmos Contracting/Demetrulacos)

On January 29, 1997, a certificate of incorporation for "Cosmos Contracting," a new entity, was filed with the New York State Department of State. (Page Aff. Ex. B.) In connection with surety bonds issued on behalf of Cosmos Contracting, FIA required Cosmos Contracting and its principals to execute another indemnity agreement.

Notarized signatures of G. Demetruclacos, individually and as President now of Cosmos Contracting, and his then wife M. Demetrulacos, appear on an Agreement of Indemnity dated February 10, 1997 (the "1997 Indemnity Agreement"). The 1997 Indemnity Agreement refers to (1) FIA as "the Surety"; (2) Cosmos Contracting as "the Contractor"; and (3) G. Demetrulacos and M. Demetrulacos as "the Indemnitors." (Alongi Aff. Ex. A.)

III. 1998 Indemnity Agreement (Cosmos Contracting/Tvivelkis)

Following a change in management at Cosmos Contracting, FIA required Cosmos Contracting and its principals to enter into another indemnity agreement. Notarized signatures of William Tzivelkis ("W. Tzivelkis"), individually and as President of Cosmos Contacting, and his wife I. Tzivelkis appear on an Agreement of Indemnity, dated July 14, 1998 (the "1998 Indemnity Agreement"). The 1998 Indemnity Agreement refers to (1) FIA as "the Surety"; (2) Cosmos Contracting as "the Contractor"; and (3) W. Tzivelkis and I. Tzivelkis as "the Indemnitors." (Alongi Aff. Ex. A.)

The terms of the 1997 and 1998 Indemnity Agreements, issued on behalf of Cosmos Contracting as the named contractor, are in relevant parts identical to the terms of the 1996 Indemnity Agreement, issued on behalf of Cosmos Group and GBE as the named contractors.*fn6

III. Alasia Indemnity Agreement

On or about April 1, 1999, Alasia, GBE, and Alasia & GBE (a joint venture), requested that FIA obtain surety bonds on their behalf. Notarized signatures of J. Rusin, individually and as President of Alasia; G. Shinas, individually and as President of GBE and GBE & Alasia; L. Rusin; and P. Shinas appear on an Agreement of Indemnity dated April 1, 1999 (the "Alasia Indemnity Agreement"). The Alasia Indemnity Agreement refers to (1) FIA as "the Surety"; (2) Alasia, GBE & Alasia, and GBE as "the Contractor"; and (3) J. and L. Rusin, and G. and P. Shinas as "the Indemnitors." (Alongi Aff. Ex. D.)

The terms and conditions of the Alasia Indemnity Agreement are in relevant part identical to the terms and conditions of the 1996, 1997, and 1998 Indemnity Agreements.

IV. The Cosmos Contracting Bonds and the Alasia Bond

Between November 1997 and January 2000, and at the request of FIA, AXA, as surety, executed at least four payment and performance bonds on behalf of Cosmos Contracting, as principal, in connection with contracts Cosmos Contracting entered into with the New York State Department of Transportation (NYSDOT) and the New York State Thruway Authority (NYSTA) (the "Cosmos Contracting Bonds"). (Alongi Aff. Ex. E.)

On or about April 9, 1999, AXA, as surety, executed a payment and performance bond on behalf of Alasia, as principal, in connection with a contract Alasia entered into with the New York City Housing Authority (the "Alasia Bond"). (Id.)

The Cosmos Contracting Bonds and the Alasia Bond (collectively, the "Bonds") secured Cosmos Contracting's and Alasia's performances on the bonded projects, as well as the payment of subcontractors, laborers, and material suppliers on the bonded projects. (Alongi Aff. Ex. E.)

V. Plaintiffs' Losses on the Bonds

A. Cosmos Contracting Payments

On or about July 3, 2001, W. Tzivelkis, as then President of Cosmos Contracting, executed voluntary default letters on each of the Cosmos Contracting bonded projects. Following Cosmos Contracting's defaults, the NYSDOT and NYSTA made demands upon AXA under the Cosmos Contracting performance bonds to complete Cosmos Contracting's remaining obligations on each of the bonded projects , and AXA received claims under the payment bonds for payment for labor and/or materials. After investigating the merits of the demands and claims, Plaintiffs agreed to complete the Cosmos Contracting bonded projects and make payments to settle the payment claims.

Plaintiffs allege they have incurred, through March 31, 2006, net losses (including legal and consulting fees) in the amount of $20,939,812.36 in satisfying the payment and performance claims on the Cosmos Contracting Bonds. (Alongi Aff. Ex. G.) Thus, Plaintiffs claim that, pursuant to the 1996, 1997, and/or 1998 Indemnity Agreements, defendants GBE, S. Shinas, G. Shinas, M. Shinas, M. Demetrulacos, W. Tzivelekis, and I. Tzivelekis are obligated to indemnify Plaintiffs for their net losses, costs, and expenses on the Cosmos Contracting Bonds in the amount of $20,939,812.36.

B. Alasia Payments

On or about June 2, 2000, AXA received a claim against the Alasia Bond from T&T Electrical Corp., alleging that Alasia failed to pay $174,000 for labor and materials in connection with the Tompkins Houses Project. T&T Electrical filed suit in New York state court against AXA, among others, seeking to enforce its bond claim. On or about February 14, 2002, AXA received a claim against the Alasia Bond from Carty Associates, Inc., alleging that Alasia failed to pay $17,335.74 for labor and materials in connection with the housing project. After investigating the merits of the claims, Plaintiffs settled the bond claims by making payments to T&T Electrical and Carty Associates, Inc. in the amounts of $170,000.00 and $17,335.74 respectively. (Alongi Aff. Ex. H.)

Plaintiffs allege they have incurred, through March 31, 2006, losses (including legal and consulting fees) in the amount of $194,326.30 in satisfying claims pursuant to the Alasia Bond. Plaintiffs seek to recover that amount pursuant to the Alasia Indemnity Agreement.

STANDARD OF REVIEW

Summary judgment is appropriate only if the pleadings, affidavits, and disclosures that form the record establish that there is no "genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). Summary judgment should be denied "if the evidence is such that a reasonable jury could return a verdict" in favor of the non-moving party. NetJets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 178-79 (2d Cir. 2008). In deciding a motion for summary judgment, the Court must construe the evidence in the light most favorable to the non-moving party and must draw all reasonable inferences in the non-moving party's favor. In re "Agent Orange" Prod. Liab. Litig., 517 F.3d 76, 87 (2d Cir. 2008). The non-moving party cannot, however, "escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts, or defeat the motion through mere speculation or conjecture." W. World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (internal citations and quotations omitted).

In deciding a motion for summary judgment, the role of the Court is not to ask whether "the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Because the Court's role is limited in this respect, the Court may not make factual findings, determine credibility of witnesses, or weigh evidence. See Jeffreys v. City of New York, 426 F.3d 549, 554 (2d Cir. 2005); Hayes v. N.Y. City Dep't of Corr., 84 F.3d 614, 619 (2d Cir. 1996); United States v. Rem, 38 F.3d 634, 644 (2d Cir. 1994).

DISCUSSION

I. The Plaintiffs' ...


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