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JAMES E. MCFADDEN, INC. v. BALTIMORE CONTRS.

May 1, 1985

JAMES E. McFADDEN, INC.,
v.
BALTIMORE CONTRACTORS, INC., et al



The opinion of the court was delivered by: GILES

 GILES, J.

 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. *fn1" 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.

 FACTS

 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.
 
2. Turning over all profits from any joint venture to USF&G to be applied to reduce the line of credit.
 
3. Promptly paying all sums due and owing for labor in a manner acceptable to USF&G.
 
4. Furnishing USF&G with documentation justifying overhead expenses upon requesting USF&G to pay such expenses.
 
5. Allowing USF&G to pay directly for suppliers' claims or take whatever action necessary to settle such claims upon Baltimore's failure to pay them.
 
6. Allowing USF&G to complete projects it had bonded in Baltimore's name and at Baltimore's expense if Baltimore failed to complete them.
 
7. Providing USF&G prompt access to all project sites bonded by it and to Baltimore's books, records and other job accounts.
 
8. Installing an accounting system satisfactory to USF&G and providing monthly ...

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