Kimball Constr. Co. v. XL Specialty Ins. Co.

Kimball Construction Co., Inc. v. XL Specialty Insurance Co.

Civil No. CCB-16-2619

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

October 18, 2016

MEMORANDUM

Plaintiff Kimball Construction Company, Inc., ("Kimball") brought this action in state court against XL Specialty Insurance Company ("XL Specialty"), seeking reimbursement for $588,127.01 of payments that are at risk of being forfeited by Kimball as preference payments in a separate bankruptcy action pending in the Eastern District of Virginia. XL Specialty removed the action to federal court and moved to dismiss or, in the alternative, for summary judgment.

Pending before the court is the defendant's motion to dismiss for failure to state a claim or, in the alternative, for summary judgment. (XL Specialty Mot. Dismiss, ECF No. 7). Kimball filed a response in opposition to the motion to dismiss (Kimball Opp'n Mot. Dismiss, ECF No. 10), to which XL Specialty replied. (XL Specialty Reply Opp'n Mot. Dismiss, ECF No. 11). The motions are fully briefed, and no oral argument is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons stated below, the defendant's motion for summary judgment will be granted.

BACKGROUND

Blumenthal Kahn Truland Electric, LLC ("Truland") filed a Chapter 7 bankruptcy petition on July 23, 2014, in the Eastern District of Virginia. (Compl. ¶ 4, ECF No. 2). Prior to its bankruptcy filing, Truland served as a direct subcontractor for several construction projects at Fort Meade, Maryland. (Compl. ¶¶ 1, 17, 33). Kimball was an electrical subcontractor on three of those construction projects that are the subject of this action. (Id.). The general contractor for the projects was URS Energy & Construction ("URS"). (Compl. ¶¶ 2, 18, 34). Truland executed payment bonds with XL Specialty for the three construction projects involving Kimball, with Truland as the principal, XL Specialty as surety, and URS as obligee. (Compl., Ex. 1, Pro. 1 Subcontract, ECF No. 2-2; Compl., Ex. 7, Pro. 2 Subcontract, ECF No. 2-8; Compl., Ex. 9, Pro. 3 Subcontract, ECF No. 2-10).

The first subcontract between Kimball and Truland concerned a project known as Building 9840 Substation Uninterruptible Power Supply with UMS Module Installation (Project 1) at Fort Meade. (Compl., Ex. 1, Pro. 1 Subcontract 1). XL Specialty issued a payment bond on behalf of Truland for Project 1, numbered "SUR7402648" ("Project 1 Bond"). (Compl., Ex. 2, Pro. 1 Bond, ECF No. 2-3). On December 2, 2014, XL Specialty paid Kimball $5,233.75 in response to a claim submitted by Kimball against the Project 1 Bond. (Daily Aff. ¶ 3, ECF No. 7-1).

The second subcontract between Kimball and Truland concerned a project known as Building 9800 Substation Uninterruptible Power Supply with UMS Module Installation (Project 2), also at Fort Meade. (Compl., Ex. 7, Pro. 2 Subcontract 1). XL Specialty issued a payment bond on behalf of Truland for Project 2, numbered "SUR7402653" ("Project 2 Bond"). (Compl., Ex. 8, Pro. 2 Bond, ECF No. 2-10). On December 2, 2014, XL Specialty paid Kimball $352,218.89 in response to a claim submitted by Kimball against the Project 2 Bond. (Daily Aff. ¶ 4).

The third and final subcontract between Kimball and Truland concerned another Fort Meade project, various construction activities on the South Vault Primary Switch (Project 3). (Compl., Ex. 9, Pro. 3 Subcontract 1). XL Specialty issued a payment bond on behalf of Truland for Project 3, numbered "SUR7402649" (Project 3 Bond). (Compl., Ex. 10, Pro. 3 Bond, ECF No. 2-11). On December 2, 2014, XL Specialty paid Kimball $22,835.82 in response to a claim submitted by Kimball against the Project 3 Bond. (Daily Aff. ¶ 5).

In return for the three XL Specialty payments dated December 2, 2014, Kimball executed a "Final Affidavit, Release, and Assignment" ("Release") for the benefit of XL Specialty in connection with the Projects 1, 2, and 3 Bonds. (XL Specialty Mot. Dismiss, Ex. A, ECF No. 7-5; XL Specialty Mot. Dismiss, Ex. B, ECF No. 7-6; XL Specialty Mot. Dismiss, Ex. C, ECF No. 7-7). In the Releases, identical for each respective Bond, Kimball agreed to "release, acquit, exonerate and discharge Surety from all acts, suits, claims, damages and liabilities whatsoever which [Kimball] may have against Surety and Contractor covering the following contracts." (XL Specialty Mot. Dismiss, Ex. A 1). The Releases were signed by Stephen Kimball, Kimball's Vice President, and notarized in the state of Maryland. (Id.).¹

On October 16, 2015, the Trustee in the Truland bankruptcy case filed a Complaint to Avoid Transfers and to Recover Property and for Related Relief. (Compl., Ex. 3, ECF 2-4). The Trustee claimed that payments of $588,127.01 which Truland made to Kimball in May and June of 2014 were avoidable preferences pursuant to 11 U.S.C. § 547(b) and sought to avoid those transfers. (Id. at Attach. 1). Kimball denies liability and is defending against the Trustee's claims in the United States Bankruptcy Court for the Eastern District of Virginia. (Compl. ¶ 7).

Kimball filed an action in the Circuit Court for Anne Arundel County on June 14, 2016, claiming that XL Specialty is ultimately liable under the Bonds for any amounts that Kimball may be compelled to pay the Trustee in the bankruptcy proceeding. Kimball also claims that XL Specialty would be unjustly enriched if Kimball were required to pay funds to the bankruptcy Trustee. XL Specialty filed a notice of removal in this court on July 29, 2016, pursuant to 28 U.S.C. §§ 1332 and 1441, and subsequently filed a motion to dismiss or for summary judgment.

ANALYSIS

I. Standard of Review

This court has diversity jurisdiction over the case, 28 U.S.C. § 1332(a), because the parties are diverse and the amount in controversy exceeds $75,000. The case was properly removed from the Circuit Court for Anne Arundel County, Maryland, pursuant to 28 U.S.C. § 1441(a). The defendants have moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6) or, in the alternative, for summary judgment under Fed. R. Civ. P. 56.

A court considers only the pleadings when deciding a Rule 12(b)(6) motion. Where the parties present matters outside of the pleadings and the court considers those matters, as here, the motion is treated as one for summary judgment. See Fed. R. Civ. P. 12(d); Gadsby by Gadsby v. Grasmick, 109 F.3d 940, 949 (4th Cir. 1997); Paukstis v. Kenwood Golf & Country Club, Inc., 241 F. Supp. 2d 551, 556 (D. Md. 2003). "There are two requirements for a proper Rule 12(d) conversion." Greater Baltimore Ctr. for Pregnancy Concerns, Inc. v. Mayor and City Council of Baltimore, 721 F.3d 264, 281 (4th Cir. 2013). First, all parties must "be given some indication by the court that it is treating the 12(b)(6) motion as a motion for summary judgment," which can be satisfied when a party is "aware that material outside the pleadings is before the court." Gay v.Wall, 761 F.2d 175, 177 (4th Cir. 1985); see also Laughlin v. Metro. Washington Airports Auth., 149 F.3d 253, 261 (4th Cir. 1998) (commenting that a court has no obligation "to notify parties of the obvious"). "[T]he second requirement for proper conversion of a Rule 12(b)(6) motion is that the parties first 'be afforded a reasonable opportunity for discovery.'" Greater Baltimore, 721 F.3d at 281.

Kimball had adequate notice that XL Specialty's motion might be treated as one for summary judgment. The motion's alternative caption and attached materials are in themselves sufficient indicia. See Laughlin, 149 F.3d at 260-61. Moreover, the plaintiff referred to the motion in their opposition brief as one for summary judgment and submitted additional documentary exhibits. If Kimball had thought that it needed additional evidence to oppose summary judgment, Rule 56(d), which they have not invoked, afforded them the opportunity to seek further discovery through an affidavit. See Fed. R. Civ. P. 56(d); see also Greater Baltimore, 721 F.3d at 281 ("[The defendant] took 'the proper course' when it filed the Rule 56([d]) Affidavit, 'stating that it could not properly oppose . . . summary judgment without a chance to conduct discovery.'") (citation omitted); Laughlin, 149 F.3d at 261 (refusing to overturn district court's grant of summary judgment on assertions of inadequate discovery when the nonmoving party failed to make an appropriate motion under Rule 56([d])). Therefore, the court will consider the affidavits and additional materials submitted by the parties and will treat the motion of the defendant as a motion for summary judgment.

Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The Supreme Court has clarifiedthat this does not mean that any factual dispute will defeat the motion. "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). Whether a fact is material depends upon the substantive law. See id.

"A party opposing a properly supported motion for summary judgment 'may not rest upon the mere allegations or denials of [his] pleadings,' but rather must 'set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed. R. Civ. P. 56(e)). The court must "view the facts and draw reasonable inferences 'in the light most favorable to the party opposing the [summary judgment] motion,'" Scott v. Harris, 550 U.S. 372, 378 (2007) (alteration in original) (quoting United States v. Diebold, 369 U.S. 654, 655 (1962)), but ...