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Fidelity & Deposit Company of Maryland v. Westra Construction

May 10, 2010

FIDELITY & DEPOSIT COMPANY OF MARYLAND, PLAINTIFF
v.
WESTRA CONSTRUCTION, INC., AND HOMETOWN BANK, DEFENDANTS



The opinion of the court was delivered by: Christopher C. Conner United States District Judge

(Judge Conner)

MEMORANDUM

Plaintiff Fidelity & Deposit Company of Maryland ("F&D") brings this declaratory judgment action requesting a judicial pronouncement of its rights as a commercial surety that issued payment bonds on behalf of defendant Westra Construction, Incorporated ("Westra"). F&D contends that it is equitably subrogated to a portion of the proceeds of a bond claim levied by Westra against non-party United States Fidelity & Guaranty Company ("USF&G"). Westra, in turn, is bankrupt and indebted to defendant Hometown Bank for a sum in excess of $13.5 million. F&D and Hometown Bank both claim priority to the proceeds of the USF&G payment bond, which was the subject of a separate federal lawsuit. Presently before the court is F&D's motion for partial summary judgment. (Doc. 16.) For the reasons that follow, the motion will be granted.

I. Statement of Facts*fn1

The instant dispute derives from a large-scale project to renovate the Pennsylvania Turnpike's Central Administration Building in Lower Swatara Township, Pennsylvania. In April of 1999, the Pennsylvania Turnpike Commission entered into a construction contract with CCI, a general contractor, to perform the necessary renovations. (Doc. 17 ¶ 1; Doc. 23 ¶ 1.) CCI thereafter entered a subcontract with Westra to complete specified "general trades construction work" for a sum of $8,730,000. (Doc. 17 ¶ 2; Doc. 23 ¶ 2.) Under the provisions of the subcontract, Westra was obligated to provide both performance and payment bonds in order to guarantee its work on the project.*fn2 (Doc. 17 ¶ 9; Doc. 23 ¶ 9.) Westra thus entered into a surety agreement with F&D, and F&D issued a performance bond and a payment bond on behalf of Westra, as principal, in accordance with the terms of the subcontract.*fn3 (Doc. 17 ¶ 10; Doc. 23 ¶ 10.) In addition, Westra executed an agreement of indemnity, wherein it contracted to indemnify F&D "against any and all liability for losses and/or expenses of whatsoever kind or nature" which F&D may incur as surety. (Doc. 17 ¶ 12; Doc. 23 ¶ 12.) The indemnification agreement also entitled F&D "to charge for any and all disbursements made by it in good faith . . . under the belief that it is or was 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."*fn4 (Doc. 17 ¶ 12; Doc. 23 ¶ 12.)

Between October of 1999 and February of 2000, Westra entered into at least four sub-subcontracts with Novinger's, Incorporated and the Novinger Group, Incorporated (collectively, "Novinger"). (Doc. 17 ¶ 17; Doc. 23 ¶ 17.) Westra failed to pay Novinger all the amounts owed under these sub-subcontracts, however, and on August 8, 2001, counsel for Novinger delivered correspondence to F&D requesting payment of $566,923.57. (Doc. 17 ¶ 18; Doc. 23 ¶ 18; Doc. 23, Ex. 7.) Novinger's demand further indicated that the correspondence "constitute[d] the notice required under paragraph 4.1 of the Payment Bond"-a provision which required F&D to respond to an obligee's demand for payment within forty-five days of receipt. (See Doc. 19 at 26; Doc. 23, Ex. 7.) F&D took no action on Novinger's bond claim for approximately 110 days. (See Doc. 23 ¶ 23; Doc. 23, Ex. 8.) On February 13, 2002, Novinger filed civil suit against Westra and F&D in the Dauphin County Court of Common Pleas, seeking $566,000 plus interest, penalties, and attorneys' fees. (Doc. 17 ¶¶ 19-20; Doc. 23 ¶¶ 19-20; Doc. 23, Ex. 10.)

Novinger's civil complaint consisted of two claims: the first asserted an action on payment bond against both Westra and F&D, while the second stated an action for breach of bond terms solely against F&D. (See Doc. 23, Ex. 10.) On November 18, 2002, the court entered an order granting Novinger partial judgment on the pleadings. (See Doc. 19 at 31.) The Common Pleas court explained that "[b]ecause of [F&D's] breach of . . . its payment bond, [F&D] is hereby precluded from presenting any evidence in its defense at trial." (Id.) F&D thereafter moved for clarification of the court's order and, on April 16, 2003, the court issued an order stating that it was "this court's intent . . . to preclude Defendant Fidelity and Deposit Company of Maryland from presenting evidence in its own defense." (Doc. 19 at 33.) The parties agree that the above-described orders did not prevent Westra from proffering its own defenses. (Doc. 17 ¶ 29; Doc. 23 ¶ 29.)

After receipt of the April 16 order, F&D commenced efforts to amicably resolve Novinger's claims. (See Doc. 17 ¶ 30; Doc. 23 ¶ 17.) On February 7, 2006, F&D made an initial payment to Novinger of $202,486.68-a debt amount which F&D asserts was undisputed by Westra.*fn5 (See Doc. 17 ¶¶ 32-33.) Westra neither authorized or objected to payment of this sum.*fn6 (See Doc. 17 ¶ 35; Doc. 23 ¶ 35.) During continuing negotiations, Novinger sought an additional $390,676, a sum which it eventually lowered to $290,000. (See Doc. 17 ¶¶ 42-43; Doc. 23 ¶¶ 42-43.) F&D concluded that Novinger was entitled to a portion of this demand and thus agreed to pay $200,000 more to settle all claims. (See Doc. 17 ¶ 44; Doc. 23 ¶ 44.) Defendants acknowledge that F&D's pursuit of an amicable resolution to the Novinger lawsuit-and its cash settlement thereof-were actions taken in good faith. (Doc. 17 ¶ 54; Doc. 23 ¶ 54.)

In a separate matter relating to the same construction project, Westra claimed that it was owed $900,000 from USF&G, surety for the project's general contractor. (See Doc. 17 ¶ 62; Doc. 23 ¶ 62.) Westra filed suit before the undersigned against USF&G on May 21, 2003, and the litigation settled in the fall of 2009. (See Westra Constr., Inc. v. United States Fidelity & Guar. Co., No. 1:03-CV-0833 (M.D. Pa.), Dkt. Nos. 1, 117.) F&D herein contends that it is equitably subrogated to the proceeds of the USF&G payment bond claim up to the amount of $402,486.68, which is the sum total paid by F&D to settle the Novinger lawsuit. Alternatively, F&D asserts that the terms of the indemnity agreement expressly permitted it to settle the Novinger claims in good faith. Westra does not question F&D's entitlement to a portion of the USF&G payment bond claim, but argues that F&D is due only the amount Westra actually owed Novinger. According to Westra, F&D essentially overpaid to settle the litigation and it is not entitled to recoup any portion of this overpayment.

On June 27, 2008, F&D commenced this suit by filing a complaint for declaratory judgment against Westra and Hometown Bank. (See Doc. 1.) In defendants' answer, Hometown Bank averred that it was Westra's secured lender, and thus entitled to priority over F&D with respect to any recovery obtained from USF&G. Defendants further asserted that even if F&D were equitably subrogated to Westra's rights against the USF&G bond, "it is only subrogated to the amount that Westra actually owed Novinger, not the amount F&D paid Novinger." (Doc. 8 at 11.) On January 15, 2009, F&D moved for partial summary judgment, seeking to preclude defendants from presenting evidence regarding the "amount actually owed" to Novinger under the sub-subcontracts with Westra. (See Doc. 16; see also Hr'g Tr. at 32.*fn7 ) This motion has been fully briefed and orally argued, and is now ripe for disposition.

II. Standard of Review

Through summary adjudication the court may dispose of those claims that do not present a "genuine issue as to any material fact" and for which a jury trial would be an empty and unnecessary formality. See FED. R. CIV. P. 56(c). The burden of proof is upon the nonmoving party to come forth with "affirmative evidence, beyond the allegations of the pleadings," in support of its right to relief. Pappas v. City of Lebanon, 331 F. Supp. 2d 311, 315 (M.D. Pa. 2004); FED. R. CIV. P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). This evidence must be adequate, as a matter of law, to sustain a judgment in favor of the non-movant on the claims. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-57 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-89 (1986); see also FED. R. CIV. P. 56(c), (e). Only if this threshold is met may the cause of action proceed. Pappas, 331 F. Supp. 2d at 315.

III. Discussion*fn8

The present motion seeks judicial resolution of the central affirmative defense raised by Westra and Hometown Bank: namely, that F&D is entitled to recoup only the amount of the USF&G payment bond claim which Westra actually owed Novinger under the sub-subcontracts.*fn9 Defendants argue that the price paid to settle the Novinger dispute-$402,486.68-was substantially more than Westra actually owed. According to defendants, F&D was willing to overpay in part because it had been precluded by court order from defending against ...


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