Bmd Contractors, Inc. v. Fid & Deposit Co. of Maryland

828 F.Supp.2d 978

BMD CONTRACTORS, INC. and Ferguson Enterprises, Inc., Plaintiffs,

v.FIDELITY AND DEPOSIT COMPANY OF MARYLAND, Defendant.

Case No. 1:09–cv–0121–TWP–DML.

United States District Court,S.D. Indiana,Indianapolis Division.

Jan. 13, 2011.

Brandi A. Gibson, E. Davis Coots, Coots Henke & Wheeler, P.C., Carmel, IN, for Plaintiffs.

Andrielle Marie Metzel, Benesch, Friedlander, Coplan & Aronoff L.L.P., Indianapolis, IN, James William Weikamp, Mark Ryan Hertrick, Thomas O. Crist, William Irwin Kohn, Benesch Friedlander Coplan & Aronoff L.L.P., Cleveland, OH, for Defendant.

ENTRY ON MOTIONS FOR SUMMARY JUDGMENT

TANYA WALTON PRATT, District Judge.

This matter, which relates to the scope of a surety's obligations under a bond, is before the Court on the parties' Cross–Motions for Summary Judgment. Specifically, the present dispute stems from a subcontractor and vendor's allegations that they are entitled to payment under a bond executed by a surety. Currently, there are four Motions for Summary Judgment pending in this action. In this action, BMD Contractors, Inc., a subcontractor, (“ BMD ”) and Ferguson Enterprises, Inc., a vendor (“ Ferguson ”) filed summary judgment motions against the surety, Fidelity and Deposit Company of Maryland (“ F & D ”) [Dkt. 126 and Dkt. 129]. F & D countered by filing separate Motions for Summary Judgment against BMD [Dkt. 132] and Ferguson [Dkt. 134]. For the reasons set forth below, F & D's Motions for Summary Judgment [Dkt. 132 and Dkt. 134] are GRANTED in their entirety. For the same reasons, BMD and Ferguson's Motions for Summary Judgment [Dkt. 126 and Dkt. 129] are DENIED in their entirety.

I. LEGAL STANDARD

Federal Rule of Civil Procedure 56(c) provides that summary judgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Hemsworth v. Quotesmith.Com, Inc., 476 F.3d 487, 489–90 (7th Cir.2007). In ruling on a motion for summary judgment, the court reviews “the record in the light most favorable to the nonmoving party and draw[s] all reasonable inferences in that party's favor.” Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir.2009) (citation omitted). However, “[a] party who bears the burden of proof on a particular issue may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact that requires trial.” Hemsworth, 476 F.3d at 490 (citation omitted). “Construction of a written contract is a question of law for which summary judgment is particularly appropriate.” Slutsky–Peltz Plumbing & Heating Co., Inc. v. Vincennes Cmty. School Corp., 556 N.E.2d 344, 345 (Ind.Ct.App.1990) (citation omitted).

II. BACKGROUND

A. Factual Basis of the Dispute

In early 2007, Getrag Corporate Group, a manufacturer of automobile transmissions, created Getrag Transmission Manufacturing, LLC (“ Getrag ”) for the purpose of manufacturing transmissions in Tipton, Indiana and supplying them to Chrysler, LLC (“ the Project ”). Getrag, the Project owner, entered into a contract with Walbridge Aldinger Company (“ Walbridge ”), whereby Walbridge would serve as the general contractor on the Project, spearheading the construction of the Tipton manufacturing plant.

Thereafter, Walbridge entered into multiple contracts with IPS. One of the contracts required IPS to perform mechanical piping work for the Project pursuant to Bid Package 13 (“ the IPS/Walbridge BP13 contract ”). Article XXV of the IPS/Walbridge BP13 contract specifically required IPS to provide a performance and payment bond for the work contemplated by the IPS/Walbridge BP13 contract. On October 26, 2007, IPS and BMD entered into a subcontract, whereby BMD agreed to perform, in essence, the same work described in the IPS/Walbridge BP13 contract (“ the IPS/BMD contract ”). BMD, in turn, ordered goods, materials, and supplies from Ferguson for its needs.

Subsequently, on November 8, 2007, IPS and F & D executed Subcontract Labor and Material Payment Bond No. PRF7595531 ( the “Bond” ). The Bond listed IPS as the principal and F & D as the surety. The Bond only applies to IPS's payment obligations with respect to the work contemplated by the IPS/Walbridge BP13 contract.

BMD began work on the Project on November 15, 2007—performing 99.9% of its work under the IPS/BMD contract and additional work pursuant to change orders—until a time coinciding with the genesis of the 2008 financial crisis. On October 23, 2008, all work on the Project ceased, Getrag filed for bankruptcy, and a cascade of missed payments trickled downstream. Predictably, these missed payments generated fallout. Walbridge, through other proceedings, is seeking roughly $40 million from Getrag for unpaid work that it (and its subcontractors) performed on the Project. IPS is owed over $11 million from Walbridge for the work IPS performed on the Project. To date, BMD is owed over $1.5 million under the IPS/BMD contract. Finally, Ferguson is owed roughly $700,000 for the goods, materials, and supplies that it furnished to BMD.

Until work on the Project ceased, Walbridge had paid IPS all sums it received from Getrag for work and materials IPS furnished to the Project. Similarly, IPS had paid BMD all sums it received from Walbridge for work and materials BMD furnished to the Project.

BMD and Ferguson have both filed mechanic's liens. On October 30, 2008, Ferguson filed a “Sworn Statement and Notice of Intention to Hold Mechanic's Lien” against the Project property in an amount of roughly $1.4 million. Similarly, on November 20, 2008, BMD recorded an “Amendment To Sworn Statement and Notice Of Intention to Hold Mechanic's Lien” against the Project property in an amount of over $3 million. Finally, BMD has assigned to Ferguson a portion of its purported rights to make a claim under the Bond.

Overall, despite performing their required work under their contracts without incident, Ferguson and BMD were not paid in full. When they demanded payment from IPS, IPS refused. Ferguson and BMD therefore sought payment under the Bond from F & D. When F & D refused, they filed the present suits.

B. Relevant Contract Provisions

This dispute is centered on the interaction among contract provisions found in (1) the Bond, (2) the IPS/BMD contract, and (3) the IPS/Walbridge BP13 contract. Each notable provision is identified below.

1. Key Provisions of the Bond

The Bond was issued in the amount of $5,656,140.00 and requires F & D to make payments due claimants from IPS on the IPS/Walbridge BP13 contract under certain circumstances. Specifically, the Bond states:

NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION IS SUCH, That if the Principal shall promptly make payments to all claimants as hereinafter defined, for all labor and material used or reasonably required for use in the performance of the subcontract, then this obligation shall be void; otherwise it shall remain in full force and effect, subject to the following conditions.

The Bond goes on to define a claimant as,

one having a direct contract with the Principal for labor, material, or both, used or reasonably required for use in the performance of the contract.

(Emphasis added). The Bond then describes a claimant's right to sue under the Bond:

The above-named Principal and Surety hereby jointly and severally agree with the Obligee that every claimant as herein defined, who has not been paid in full before the expiration of a period of ninety (90) days after the date on which the last of such claimant's work or labor was done or performed, or materials were furnished by such claimant, may sue on this bond for the use of such claimant, prosecute the suit to final judgment for such sum or sums as may be justly due claimant, and have execution thereon.

(Emphasis added).

2. Key Provisions of the IPS/BMD contract

From F & D's vantage point, the paramount provision in this dispute is found in the IPS/BMD contract. F & D argues that this provision is a standard “pay-if-paid” clause. Specifically, page 2 of IPS/BMD contract states, “IT IS EXPRESSLY AGREED THAT OWNER'S ACCEPTANCE OF SUBCONTRACTOR'S WORK AND PAYMENT TO THE CONTRACTOR FOR THE SUBCONTRACTOR'S WORK ARE CONDITIONS PRECEDENT TO THE SUBCONTRACTOR'S RIGHT TO PAYMENTS BY THE CONTRACTOR.” Similar language is repeated throughout the IPS/BMD contract. For instance, Article 2(g) provides, “it is a condition precedent to Contractor's obligation to make final payments to Subcontractor that Owner shall have tendered full payment for Subcontractor's Work to Contractor and that Contractor shall have accepted such full payment from Owner.” More generally, Article 2(k) provides, “Contractor may withhold payment from Subcontractor, in whole or in part, for the same reasons and under the same circumstances as Owner may withhold payment from Contractor.”

F & D also maintains that the IPS/BMD contract contains a “flow-down” provision, which effectively binds BMD to the terms of the Walbridge/IPS BP13 contract, requiring BMD to assume from IPS all of IPS's obligation toward Walbridge in the Walbridge/IPS BP 13 contract. In relevant part, Article 23 of the IPS/BMD contract provides:

Subcontractor is bound to Contractor by the terms of the Contract Documents and assumes toward Contractor, with respect to Subcontractor's work, all of the obligations and responsibilities that Contractor, by the Contract Documents, has assumed toward Owner.

Specifically, Article 3 defines Contract Documents as including “the Agreement between Owner and Contractor.”

3. Key Provisions of the IPS/Walbridge BP13 contract

Unquestionably, the IPS/Walbridge BP13 contract contains a garden-variety “pay-if-paid” provision. Article XXII provides:

[IPS] acknowledges that it has considered [Getrag's] solvency and [Getrag's] ability to perform...