James E. McFadden, Inc. ("McFadden") brought this diversity action against several defendants to recover monies allegedly due it for construction work performed as a subcontractor at the Limerick Generating Station Project. Named as the principal defendants were Bechtel Power Corporation ("Bechtel"), the general contractor, Baltimore Contractors, Inc. ("Baltimore"), the contractor with whom McFadden entered into the subcontract agreement, and United States Fidelity and Guaranty Company ("USF&G"), a bonding company. A default judgment was entered against Baltimore in July, 1983. Summary judgment was entered in favor of Bechtel in May, 1984. Thus, the only remaining defendant at this juncture is USF&G.
USF&G did not bond Baltimore on the Limerick job. However, McFadden has proceeded against USF&G on a theory that USF&G took control of Baltimore in 1980. Under plaintiff's theory, Baltimore was a mere instrumentality of USF&G and therefore USF&G should be held liable for the debts of Baltimore. USF&G has filed a motion for summary judgment arguing that the undisputed material facts show that Baltimore was not the instrumentality of USF&G. For the reasons which follow, USF&G's motion shall be granted.
USF&G bonded Baltimore for numerous construction projects. However, the Limerick project, on which McFadden worked, was not one of them. Baltimore began experiencing severe financial difficulties in 1979-80 because of a loss it incurred on one of its major projects. During this time, Baltimore and its affiliated company, the Empire Construction Company, had USF&G bonded jobs in various stages of completion, having an aggregate contract amount of $142,000,000. USF&G stood to lose up to $50,000,000 in excess of the remaining contract payments, liquidated damages and claims if it took over the jobs and completed them for Baltimore. In order to minimize its risks, USF&G entered into a Supplemental Agreement with Baltimore on April 22, 1980.
Under this Agreement, USF&G loaned about $20,000,000 to Baltimore to fund Baltimore's continued operation and the completion of bonded jobs. The agreement contained many conditions that had to be met by Baltimore. It also provided that failure to comply with these conditions could result in USF&G's terminating further bonding and/or foreclosure. Some of these conditions were:
1. Transferring to USF&G all funds paid to Baltimore under various construction contracts bonded by USF&G.