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Liberty Mutual Insurance Co. v. Milender White Construction Co.

United States District Court, D. Colorado

December 13, 2017

LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff,
v.
MILENDER WHITE CONSTRUCTION COMPANY, MW REAL ESTATE, LLC, U.S. FACILITIES MANAGEMENT, LLC, and MW SELFWORK, LLC,[1] Defendants.

          MEMORANDUM OPINION AND ORDER

          Nina Y. Wang United States Magistrate Judge

         This matter comes before the court on the Motion for Summary Judgment Against Third-Party Defendants (“Liberty's Motion for Summary Judgment”) [#17], filed by Defendant/Third Party Plaintiff Liberty Mutual Insurance Company (“Liberty”), and the cross motion, titled Third Party Defendants' Motion for Summary Judgment (“MWCC's Motion for Summary Judgment”) [#18], filed by Third Party Defendants Milender White Construction Co., MW Real Estate, LLC, U.S. Facilities Management, LLC and MW Selfwork, LLC (collectively, “MWCC”). The Motions are before the undersigned Magistrate Judge pursuant to 28 U.S.C. § 636(c) and the Order of Reference dated September 14, 2017 [#35]. After carefully reviewing the Motions and related briefing, the entire case file, and the applicable case law, I DENY IN PART and GRANT IN PART Liberty's Motion for Summary Judgment and DENY IN PART and GRANT IN PART MWCC's Motion for Summary Judgment.

         BACKGROUND

         The South Dakota Action

          The history of this action is extensive and requires a detailed recitation. On January 9, 2015, Double H. Masonry, Inc. (“Double H. Masonry”) sued Liberty and Lockton Companies, LLC in the Western Division of the United States District Court for the District of South Dakota, for breach of payment bond (“South Dakota Action”).[2] [#1-1]. Jurisdiction was premised on diversity of citizenship pursuant to 28 U.S.C. § 1332. The dispute arose out of a subcontract between Milender White Construction Company (“Milender White”) and Double H. Masonry to perform masonry work (“Subcontract”), pursuant to a prime contract between Milender White and the Oglala Sioux Tribe (“Prime Contract”), concerning the Tribe's Pine Ridge Justice Center located near Pine Ridge village, South Dakota To secure the project, Milender White obtained a payment bond signed by its representative and a representative of Liberty, and which listed Lockton Companies, LLC as a surety (the “Payment Bond”). [Id. at 3]. The Payment Bond included the following relevant terms: Liberty was bound in the penal sum of $30, 466, 297 to any subcontractor that furnished labor, materials, or equipment for use in the performance of the Prime Contract; upon receipt of a written claim, Liberty would respond within sixty days identifying the undisputed amounts of the claim along with the disputed amounts and bases for dispute, and pay or arrange payment of the undisputed amounts; Milender White and the Oglala Sioux Tribe would promptly furnish a copy of the Payment Bond upon request of any person who appeared to be a potential beneficiary of the bond; and Liberty would be liable for attorney fees incurred to recover sums found to be due and owing to a claimant. [Id. at 4]. As consideration for Liberty issuing the Bond and other bonds, and for other consideration, MWCC executed a General Agreement of Indemnity (“Indemnity Agreement”).

         Double H. Masonry ultimately initiated the South Dakota action to recover $848, 755.61 it claimed was owed under the Payment Bond as a result of Milender White's failure to pay numerous invoices and failure to pay a damages award entered against it by the Oglala Sioux Tribal Employment Rights Office (“TERO”). [#3]. Liberty filed an Answer. [#1-12]. Milender White concurrently demanded Double H. Masonry participate in arbitration pursuant to terms of the Subcontract to resolve the payment disputes, and Liberty moved the court to stay the South Dakota Action pending the outcome of that arbitration. See [#1-16]. Before the court ruled, Double H. Masonry sought without opposition to amend its Complaint to, among other things, remove Lockton Companies, LLC, and to add claims for Contractual and/or Tortious Bad Faith and for Violation of Unfair Trade Practices Act; the court accepted the First Amended Complaint on May 26, 2015. See [#1-47]. Liberty thereafter moved to dismiss the pleading in part, [#1-51], and filed an Answer to the Amended Complaint. [#1-52]. Then, pursuant to the Parties' request, the court scheduled a settlement conference and held the motion to stay pending arbitration in abeyance to await the outcome of the settlement attempt. Settlement was unsuccessful. Two months later, on October 2, 2015, Double H. Masonry moved to amend its Complaint “to remove and acknowledge satisfaction of its TERO award claim, ” to omit reference to one of the previously unpaid invoices, and to remove its claim for Violation of Unfair Trade Practices Act. [#1-83; #1-87]. Liberty thereafter filed an Answer, [#1-89], and the Parties asked the court to apply the previously-filed Motion to Dismiss as to the claim for Contractual and/or Tortious Bad Faith.

         On November 4, 2015, the court granted Liberty's motion to stay pending resolution of the arbitration proceeding between Double H. Masonry and Milender White. [#1-198]. Six months later, on April 14, 2016, Double H. Masonry moved the court to lift the stay, advising that the arbitrator had awarded it $320, 778.57 and awarded Milender White $29, 147.24, and that it intended to pursue attorney fees as to Liberty under the Payment Bond. The court granted the motion and lifted the stay, and Double H. Masonry subsequently filed a motion for attorney fees and costs. [#1-209]. On April 28, 2016, Double H. Masonry filed a motion for summary judgment on its claim for breach of payment bond. [#1-217]. Liberty thereafter filed a motion for reconsideration of the order lifting the stay, which the court granted and thereby reinstated the stay pending the completion of the arbitration proceedings, which included allocation of costs and fees. See [#1-240].

         On August 1, 2016, Liberty filed a motion for leave to file a third party complaint against MWCC to assert a breach of the Indemnity Agreement, contending that Double H. Masonry's claims against Liberty “implicate [MWCC's] duty to defend and indemnify Liberty pursuant to the Agreement, ” and also implicate Milender White's common law duties to Liberty. On August 5, 2016, Double H. Masonry filed a motion for amended attorney fees. [#1-254]. Five days later, the court granted Liberty's motion, and accepted the Third Party Complaint. [#1-279]. The Third Party Complaint is the operative pleading in the action between the Parties before this court, and is referenced hereafter as the Complaint. See [#12].

         Liberty's Complaint asserts the following claims: (1) Breach of Express Contract against All Indemnitors; (2) Common Law Indemnification against Milender White; (3) Injunctive Relief - Specific Performance Against All Indemnitors; (4) Injunctive Relief - Quia Timet Rights Against Milender White and All Indemnitors; and (5) Unjust Enrichment - Equitable Liens. [#12]. Liberty seeks the following relief: judgment for costs and fees incurred by it as a result of it issuing the Payment Bond; specific performance of the Agreement of Indemnity; injunctive relief requiring MWCC to place Liberty in sufficient funds to cover any possible liability for which MWCC will be obligated to indemnify Liberty per the terms of the Agreement of Indemnity; for an equitable lien in the amount of $235, 000 placed in favor of Liberty on real property located in Arvada, Colorado owned by MWCC; and for a security interest in favor of Liberty on rights, title, and interest of assets belonging to MWCC. [Id. at 11]. On October 4, 2016, MWCC filed its Answer to the Complaint. [#1-314; #13].

         In an order dated September 30, 2016, the District of South Dakota granted in part and denied in part Liberty's motion to dismiss. In a matter of first impression, the South Dakota court allowed Double H. Masonry's claim for tortious bad faith to proceed but dismissed Double H. Masonry's claim for contractual bad faith. [#1-312]. On October 13, 2016, Liberty filed a motion for summary judgment arguing essentially that Double H. Masonry sued Liberty prematurely, Double H. Masonry has been reimbursed for all damages it could have recovered under the Payment Bond, and there was in fact a good faith dispute between Double H. Masonry and Milender White. [#1-315; #1-370]. Double H. Masonry thereafter filed an unopposed motion asking the court to lift the stay, for permission to hold a Rule 26(f) conference, and that the court enter a scheduling order. The court granted the motion and lifted the stay, and MWCC moved to join in Liberty's motion for summary judgment as to Double H. Masonry. [#1-337]. Thereafter, pursuant to the Parties' request, the court set a settlement conference to occur December 8, 2016. [#1-365]. On that date, Liberty and Double H. Masonry reached an agreement to settle their dispute.

         The Pending Action

          On February 6, 2017, Liberty filed this instant Motion for Summary Judgment against MWCC. See [1-373; #17]. Liberty moves for partial summary judgment as to its first claim for Breach of Contract on the basis that claims were made against Liberty by reason of Liberty having executed the Payment Bond. Liberty states that while it and MWCC had “justifiably disputed Double H's claim, losses were incurred, ” e.g., “Milender forced Double H to arbitrate its claims, and Milender lost.” [#17 at 3]. Liberty argues that during its litigation against Double H. Masonry, it “made repeated demands on Milender and the Indemnitors for defense and indemnification for all of Liberty's losses”; “Milender and the Indemnitors failed and refused to make Liberty whole, as required by the plain language of the [I]ndemnity [A]greement”; and, “[a]s a matter of law, they are required to do so.” [Id.] Liberty asserts that it incurred losses of at least $320, 197 as a result of the alleged breach.

         On February 27, 2017, MWCC filed its own pending Motion for Summary Judgment. [#1-378; #18]. MWCC moves for judgment as a matter of law that it has no obligation to indemnify Liberty against bad faith claims asserted by Double H. Masonry against Liberty. [#18]. MWCC contemporaneously filed a combined Response to Liberty's Statement of Material Facts and Statement of Material Facts in support of its Response and Cross Motion for Summary Judgment, [#1-379], and a combined Brief in support of its Response in opposition to Liberty's Motion for Summary Judgment and in support of its Motion for Summary Judgment, [#1-380]. On March 24, 2017, Liberty filed a combined Response/Reply brief to MWCC's combined Brief in support of Response to and Motion for Summary Judgment. [#1-400]. On April 14, 2017, MWCC filed a Reply in support of its Cross Motion for Summary Judgment. [#1-407].

         On February 28, 2017, MWCC filed a Motion to Realign Parties and Transfer Venue, asking the District of South Dakota to realign Liberty as Plaintiff and MWCC as Defendant and to transfer the action to this District. [#1-395]. MWCC argued that, with the claims between Double H. Masonry and Liberty resolved, the only claims left to be tried are Liberty's third-party claims against MWCC, and neither MWCC nor Liberty are citizens of or maintain their principal places of business in South Dakota. [Id.] Rather, MWCC argued, “Liberty's claims arise out of a written contract made in Colorado, events taking place in Colorado, and the witnesses relevant to those claims are located overwhelmingly in Colorado.” [Id. at 3]. Liberty opposed the motion with respect to the request to transfer the action to Colorado. See [#1-403].

         On March 2, 2017, Double H. Masonry and Liberty submitted a stipulation for dismissal, asking that Double H. Masonry's claims against Liberty be dismissed with prejudice without an award of attorney fees or costs to either Party. [#1-397]. The court subsequently dismissed those claims but retained jurisdiction over the parties' settlement agreement. [#1-398]. On April 14, 2017, the court granted MWCC's motion in part and realigned the parties, as is reflected by this court's caption. See [#1-406]. Four months later, on August 29, 2017, the court granted the remainder of the relief MWCC sought, and ordered that the action be transferred to this District. [#1].[3]

         Liberty is a Massachusetts corporation and maintains its principal place of business in that state. [#1-396 at 6 n.1]. The entities that comprise MWCC are Colorado corporations that maintain their principal places of business in Colorado. [Id. at 6]. The amount in controversy exceeds $75, 000. See [#17 at 12]. Accordingly, this court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332.

         LEGAL STANDARD

         A party may be entitled to summary judgment prior to trial if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Henderson v. Inter-Chem Coal Co., Inc., 41 F.3d 567, 569 (10th Cir. 1994). “A ‘judge's function' at summary judgment is not ‘to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.'” Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986)). Whether there is a genuine dispute as to a material fact depends upon whether the evidence presents a sufficient disagreement to require submission to a jury or conversely, is so one-sided that one party must prevail as a matter of law. Anderson, 477 U.S. at 248-49; Stone v. Autoliv ASP, Inc., 210 F.3d 1132, 1136 (10th Cir. 2000); Carey v. U.S. Postal Service, 812 F.2d 621, 623 (10th Cir. 1987). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.'” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing First Nat. Bank of Ariz. v. Cities Service Com, 391 U.S. 253, 289 (1968)).

         The burden of showing that no genuine issue of material fact exists is borne by the moving party. Horizon/ CMS Healthcare Corp., 220 F.3d 1184, 1190 (10th Cir. 2000). In reviewing a motion for summary judgment the court views all evidence in the light most favorable to the non-moving party. See Garrett v. Hewlett-Packard Co., 305 F.3d 1210, 1213 (10th Cir. 2002). Where the moving party will bear the burden of proof on an issue at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. See Celotex Corp., 477 U.S. at 323. Once the moving party meets its initial burden, the non-moving party must go beyond the pleadings and, by its own affidavits or discovery, “set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). The non-movant “may not rest upon mere allegation or denials of [the] pleadings, but must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256. The court must resolve all doubts in favor of the existence of triable issues of fact. Boren v. Southwestern Bell Tel. Co., 933 F.2d 891, 892 (10th Cir. 1991).

         Cross motions for summary judgment must be treated separately, and the denial of one does not require the grant of another. Buell Cabinet v. Sudduth, 608 F.2d 431, 433 (10th Cir. 1979). Rather, the court may enter summary judgment only if the moving party carries its burden of demonstrating that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. See Reed v. Bennett, 312 F.3d 1190, 1194-95 (10th Cir. 2002). Thus, Liberty has the burden of demonstrating that no genuine issue of material fact exists with respect to its argument that MWCC breached the Indemnity Agreement; and MWCC carries the same burden to demonstrate that no genuine issue of material fact exists with respect to its argument that the Indemnity Agreement does not require it to indemnify Liberty for bad faith claims and Liberty is not entitled to common law indemnification.

         STATEMENT OF UNDISPUTED MATERIAL FACTS

         On May 25, 2012, Liberty issued the Payment Bond in the penal amount of $30, 466, 297 on behalf of Milender White, as principal, for preconstruction and construction services at the Pine Ridge Justice Center Complex. [#17 at ¶ 1; #17-1; #1-379 at 4, ¶ 1]. As consideration for Liberty issuing the Payment Bond and other bonds, and for other consideration, Milender White and MW Real Estate, LLC, U.S. Facilities Management, LLC, and MW Selfwork, LLC (the “Indemnitors”) executed the Indemnity Agreement. [#17 at ¶ 2; #1-379 at 4, ¶ 2]. Pursuant to the Indemnity Agreement, the Indemnitors agreed to:

[E]xonerate, hold harmless, indemnify, and keep indemnified the Surety from and against any and all liability for losses, fees, costs, and expenses of whatsoever kind or nature including, but not limited to, pre- and post-judgment interest at the maximum rate permitted by law accruing from the date of a breach of this Agreement or a breach of any other written agreements between or for the benefit of the Surety and the Indemnitor(s) and/or Principal(s) (hereinafter referred to as “Other Agreements”), court costs, counsel fees, accounting, engineering and any other outside consulting fees and from and against any and all such losses, fees, costs and expenses which the Surety may sustain or incur: (1) by reason of being requested to execute or procure the execution of any Bond; or (2) by having executed or procured the execution of any Bond; or (3) by reason of the failure of the Indemnitors or Principals to perform or comply with any of the covenants and conditions of this Agreement or Other Agreements; or (4) in enforcing any of the covenants and conditions of this Agreement or Other Agreements. Payment by reason of the aforesaid causes shall be made to the Surety by the Indemnitors and/or Principals promptly, upon demand by the Surety, whether or not the Surety shall have made any payment therefor and, at the Surety's sole option, irrespective of any deposit of collateral….In the event of any payment by the Surety, the Indemnitors and Principals further agree that in any accounting between the Surety and the Principals, or between the Surety and the Indemnitors, or either or both of them, the Surety shall be entitled to charge for any and all disbursements made by it in good faith in and about the matters herein contemplated by this Agreement or Other Agreements under the belief that it is, or was, or might be liable for the sums and amounts so disbursed or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity or expediency existed; and that the 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. Surety shall have no obligation to invest or provide a return on any collateral provided to it under this Agreement.

[#17 at ¶ 3; #1-379 at 4, ¶ 3].

         Double H. Masonry and MWCC became involved in a contract dispute over amounts Double H. Masonry claimed it was owed for both Subcontract and alleged additional work, and amounts for back charges that MWCC claimed against Double H. Masonry. [#1-379 at 5, ¶ 4; #1-400 at 6, ¶ 4]. On or about November 26, 2014, Double H. Masonry asserted a claim against the Payment Bond as to Liberty. [#17 at ¶ 4; #1-379 at 5, ¶ 5]. In January, 2015, Double H. Masonry filed suit against Liberty alleging that Liberty failed to pay under the Payment Bond and breached its obligations as surety. [#17 at ¶ 5; #1-379 at 5, ¶ 7]. Shortly thereafter, on or about January 16, 2015, Liberty tendered its defense of Double H. Masonry's claims to Milender White, “to protect and save harmless [Liberty] from any loss, cost or expense connected with the above-referenced lawsuit.” [#17 at ¶ 6; #1-379 at 5, ¶ 8]. On February 3, 2015, MWCC responded to Double H. Masonry concerning its Payment Bond claim, explaining why Double H.

         Masonry was not owed what it claimed, and identifying the claims for back charges MWCC had against Double H. Masonry. [#1-379 at 5, ¶ 9; #1-400 at 7, ¶ 9]. One week later, MWCC demanded arbitration of the contractual disputes with Double H. Masonry. [#1-379 at 5, ¶ 10; #1-400 at 7, ¶ 10]. Ultimately, the arbitration resulted in a mixed award, with Double H. Masonry prevailing as to some claims and MWCC prevailing as to others. The arbitrator found Double H. Masonry to be the prevailing party, as he awarded it a net amount of $518, 646.48 in damages and fees. [#1-379 at 6, ¶¶ 14-18; #1-400 at 8, ¶¶ 14-18]; see [#1-274 at 12 (ruling that Double H. Masonry was the prevailing party at arbitration because: (1) of the amount of money awarded to it versus the amount of money awarded to Milender White; (2) Double H. Masonry was entitled to a circuit court judgment, offset by the award to Milender White; (3) Double H. Masonry was successful on Milender White's delay claim; and (4) Milender White abandoned any indemnity claim it had intended to assert)]. MWCC satisfied this amount on or about July 5, 2016. [#1-379 at 6, ¶ 19; #1-400 at 8, ¶ 19].

         On February 3, 2015, Sherman & Howard L.L.C. (“Sherman & Howard”), sent a letter to Liberty outlining the terms and condition under which it would defend Liberty on behalf of MWCC, but Liberty never signed an engagement letter with Sherman & Howard. [#1-379 at 6, ¶ 20; #1-400 at 8, ¶ 20]. On April 25, 2015, Double H. Masonry amended its Complaint against Liberty to assert the claims for contractual and/or tortious bad faith and for unfair trade practices [#1-379 at 6, ¶ 21; #1-400 at 8, ¶ 21], and Liberty engaged separate counsel. It did not tender the defense of the amended Complaint to MWCC. [#1-379 at 7, ¶ 22; #1-400 at 8-9, ¶ 22]. These claims were not included in nor were they resolved by the arbitration. [#1-379 at 7, ¶ 23; #1-400 at 8-9, ¶ 23].[4] On October 8, 2015, Double H. Masonry again amended its Complaint against Liberty, and dropped the unfair trade practices claim. [#1-379 at 7, ¶ 24; #1-400 at 9, ¶ 24]; see [#1-87]. Liberty did not tender the defense of the second amended Complaint to MWCC, and continued to rely on separate counsel to defend it. [#1-379 at 7, ¶ 25; #1-400 at 9, ¶ 25]. Double H. Masonry alleged Liberty breached the duty of good faith and fair dealing in a number of respects, including Liberty's alleged conscious “failure to comply with its duties under the [B]ond, ” failure to provide Double H. Masonry with a copy of its investigative file, failure to independently and reasonably investigate Double H. Masonry's claims, and Liberty's denial of Double H. Masonry's claims without a reasonable basis. [#1-379 at 7, ¶ 26; #1-400 at 9, ¶ 26]. Double H. Masonry further asserted that Liberty failed to give equal consideration to the interests of Double H. Masonry and exhibited “oppression, fraud, or malice.” [#1-379 at 7, ¶ 27; #1-400 at 9, ¶ 27].[5] Upon review of Liberty's Motion to Dismiss, the District of South Dakota found as a matter of first impression that suretyship is a type of insurance and thus ruled that Double H. Masonry could proceed as to its claim for tortious bad faith, but could not proceed as to the claim for contractual bad faith, because “South Dakota law does not recognize an extra-contractual remedy for bad faith.” [#1-312 at 15]; see [#1-379 at 7-8, ¶¶ 28-30; #1-400 at 9, ¶¶ 28-30].

         No formal agreement was ever reached between Liberty and Milender White regarding their agreement to defend Liberty in Double H. Masonry's lawsuit against Liberty. [Id. at ¶ 7]. Liberty incurred attorney's fees, costs, and expenses in defending itself against Double H. Masonry's lawsuit. [Id. at ¶ 8]. On or about December 8, 2016, Double H. Masonry and Liberty mediated their disputes, and Liberty agreed to pay settlement funds to Double H. Masonry to avoid future litigation expense associated with those claims. [Id. at ¶ 9].

         At all times, Liberty denied all liability with respect to Double H. Masonry's claims. [#17 at ¶ 10]. Between January 16, 2015 and the date of its Motion for Summary Judgment, Liberty made multiple demands to Milender White and the Indemnitors for reimbursement of Liberty's attorney's fees, costs, expenses, and bond payments related to Double H. Masonry's claims and other losses under Liberty's bonds. [Id. at ¶ 11]. At the time of the Motion for Summary Judgment, Milender White and the Indemnitors had not provided any indemnification funds to Liberty. [Id. at ¶ 12].

         ANALYSIS

         I. Governing Law

         The District of South Dakota transferred the case pursuant to 28 U.S.C. § 1404(a), for the convenience of the Parties. See [#1]. Where a case is transferred from one forum to another under section 1404(a), the transferee court must follow the choice of law rules of the transferor court. Van Dusen v. Barrack, 376 U.S. 612, 635-37 (1964); Benne v. International Business Machs., 87 F.3d 419, 423 (10th Cir. 1996) (observing that “[t]he rule is settled that when a district court grants a venue change pursuant to 28 U.S.C. § 1404, the transferee court is obligated to apply the law of the state in which the transferor court sits.”).

         Liberty contends that the law of South Dakota should apply. MWCC argues that Colorado law should apply, and that South Dakota choice of law rules provide that “[a] contract is to be interpreted according to the law and usage of the place where it is to be performed or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.” [#1-380 at 8 (quoting SDCL § 53-1-4)]. MWCC represents that the Indemnity Agreement was executed in Colorado, and acknowledges that the Payment Bond to which the Indemnity Agreement relates was ...


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