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Colonial Surety Company v. Dme Construction Associates

September 30, 2011

COLONIAL SURETY COMPANY, PLAINTIFF
v.
DME CONSTRUCTION ASSOCIATES, ET AL., DEFENDANTS



The opinion of the court was delivered by: Yvette Kane United States District Court Middle District of Pennsylvania

Chief Judge Kane Magistrate Judge Smyser

MEMORANDUM

Currently pending before the Court is Plaintiff Colonial Surety Company's motion for summary judgment. (Doc. No. 59.) On February 18, 2011, the Court did not adopt Magistrate Judge Smyser's Report and Recommendation, in which he recommended that Plaintiff's motion for summary judgment be denied to allow for further discovery by Defendants. (Doc. No. 88.) Instead, the Court granted summary judgment to Plaintiff on the issue of liability, but deferred ruling on the damages issue pending limited discovery by Defendants. (Id.) The Court will now grant summary judgment to Plaintiff in the amount of $556,449.76.

I. BACKGROUND

Plaintiff is a Pennsylvania surety company that entered into a general indemnity agreement to execute bonds on behalf of Defendants. (See Doc. No. 77 at 5.) Defendants Peter Chardon and Darlene Edwards, husband and wife, own Defendant DME, an incorporated business with its principal place of business in New York. (Id.) Plaintiff issued seven different bonds on behalf of Defendants. (Id.) In its complaint, Plaintiff alleges that numerous payment and performance claims have been made against the bonds, but Defendants refused to cooperate in the investigation of the claims and breached the indemnity agreement "by not providing access to financial information and by failing to deliver collateral security as demanded by [Plaintiff]." (Id. at 5-6.) According to the complaint, nearly all of Plaintiff's losses relate to a roof replacement project being performed by Defendants at the Navy Depot in Mechanicsburg, Pennsylvania. (Id. at 6.)

Plaintiff filed its motion for summary judgment on September 24, 2010. (Doc. No. 59.) In its complaint, Plaintiff listed six different counts for relief; however, Plaintiff's motion for summary judgment "does not address all of the counts in the . . . complaint, and does not seek relief that is the relief requested in any of the particular counts of the complaint." (Doc. No. 77 at 8.) Rather, Plaintiff's motion argues only that it is entitled to summary judgment for the losses that it incurred pursuant to the indemnity agreement that it entered with Defendants.*fn1 (Id.)

According to Plaintiff's statement of undisputed facts, as of August 25, 2010, at least $512, 288.11 in losses had been incurred by Plaintiff "by reason of having executed Bonds for the [D]efendants." (See Doc. No. 77 at 8; Doc. No. 60 ¶ 16.) As evidentiary support for this allegation, Plaintiff submitted the affidavits of Wayne Nunziata, Plaintiff's President, and Frederick Gallo, Plaintiff's Treasurer and Controller, and accompanying exhibits. Plaintiff now asserts that it is entitled to summary judgment for its losses through June 30, 2011, in the amount of $556,449.76 in accordance with the terms of the indemnity agreement and Pennsylvania common law. (Doc. No. 60 ¶ 37; Doc. No. 111 at 15; Doc. No. 109.) In support of this claim, Plaintiff directed the Court to the following language in the indemnity agreement:

[Defendants] agree to perform all the conditions of each Bond and Contract and to indemnify and save harmless [Plaintiff] from and against any and all (i) demands, liabilities, losses, costs, damages or expenses of whatever nature or kind, . . . .

[Plaintiff] shall have the right to incur such expenses in handling a claim as it deems necessary or advisable, including but not limited to the expense for investigation, accounting, engineering and legal services, and [Plaintiff]'s good faith determination as to the necessity or advisability of any such expense shall be final and conclusive upon [Defendants]. . . . .

[A]n itemized statement of the aforesaid loss and expense, sworn to by an officer of [Plaintiff], or the vouchers or other evidence of disbursement by [Plaintiff], shall be prima facie evidence of the fact and extent of the liability hereunder of [Defendants]. (Doc. No. 1-4 ¶¶ 3-4.) Plaintiff submitted a list of payments made by Plaintiff to various vendors, its attorney, and a consulting firm. (See Doc. Nos. 59-9; 108-1.) The listing includes a figure for "Total Loss Paid" and a figure for "LAE," which refers to "loss adjustment expenses" made to Attorney Larry Miller and Cashin, Spinelli & Feretti ("Cashin"), the consulting firm that supervised Defendants' work on the roof replacement project at the Navy Depot in Mechanicsburg. (Id.; see also Doc. No. 88 at 7.) These types of expenses are listed as being recoverable by the surety under the terms of the indemnity agreement. (See Doc. No. 1-4 ¶ 4(B) & (E).)

On November 8, 2010, Defendants filed a brief in opposition to the summary judgment motion, arguing that there are genuine issues of material fact that preclude summary judgment.*fn2

(Doc. No. 65.)

In his Report and Recommendation, Magistrate Judge Smyser recommended that this Court deny Plaintiff's summary judgment motion in order to allow Defendants time to complete discovery pursuant to Celotex Corp. v. Catrett, 477 U.S. 317 (1986). (Doc. No. 77 at 13-14.) Judge Smyser noted that because there was a prima facie evidence clause in the indemnity agreement, Plaintiff's motion for summary judgment placed the burden of proof on Defendants "to show that any particular expenditures were not correctly made" by Plaintiff. (Id. (citing Fallon Elec. Co. v. Cincinnati Ins. Co., 121 F.3d 125, 129 (3d Cir. 1997) ("We conclude that the Pennsylvania courts would hold that a 'prima facie evidence' clause in an indemnity agreement shifts to the indemnitor the burden of proving that the costs incurred were not recoverable."))) As a result, Judge Smyser noted that the Celotex principle -- ordinarily in place to protect a plaintiffs' claims from being dismissed before adequate discovery -- was equally applicable in this case to protect the rights of Defendants. (Id. at 13-14 & n.6.)

Plaintiff objected to the Report and Recommendation and argued that Defendants had not pursued discovery, and "failed to identify any outstanding discovery that would result in the demonstration of a genuine issue of material fact." (Doc. No. 78 ΒΆ 11.) On February 18, 2011, the Court issued an order in which it did not adopt Magistrate Judge Smyser's Report and Recommendation. (Doc. No. 88.) The Court granted Plaintiff's summary judgment motion as to liability, ...


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