U.S. for Thecustom Grading, Inc. v. Great Am. Ins. Co.

952 F.Supp.2d 1259

UNITED STATES of America for the use of CUSTOM GRADING, INC., a New Mexico Corporation, Use Plaintiff,

v.GREAT AMERICAN INSURANCE COMPANY, an Ohio Corporation, and MV Industries, Inc., a New Mexico Corporation, Defendants.

Great American Insurance Company, Third–Party Plaintiff and Crossclaimant,

v.MV INDUSTRIES, Crossclaim Defendant,andFlinchum Construction Company, Inc., Michael Vigil, and Melissa Seligman–Vigil, Third–Party Defendants.

Case No. 12–CV–1313 WJ/KBM.

United States District Court, D. New Mexico.

July 10, 2013.

Wayne E. Bingham, Bingham, Hurst, Apodaca & Wile, PC, Albuquerque, NM, for Plaintiff.

Connor L. Cantrell, The Hustead Law Firm, Denver, CO, for Third–Party Plaintiff and Crossclaimant.

Eric D. Norvell, Robert J. Muehlenweg, Rammelkamp Muehlenweg & Cordova PA, Albuquerque, NM, for Third–Party Defendants.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART GREAT AMERICAN INSURANCE COMPANY'S MOTION TO DISMISS COUNTERCLAIMS BY MICHAEL VIGIL AND MELISSA SELIGMAN–VIGIL

WILLIAM P. JOHNSON, District Judge.

THIS MATTER comes before the Court on Third–Party Plaintiff Great American Insurance Company's Motion to Dismiss Counterclaims by Michael Vigil and Melissa Seligman–Vigil (Doc. 18), filed April 29, 2013. For the reasons explained below, Defendant's motion is GRANTED in part and DENIED in part.

BACKGROUND

In or around May 2010, Defendant MV Industries, Inc. (“MVI”) entered into a contract with Los Alamos National Security, LLC (“LANS”) to act as general contractor on a federal public works project at the Los Alamos National Laboratory. The Miller Act, 40 U.S.C. §§ 3131–3134, requires that before a contractor can be awarded any contract of more than $100,000 for a federal public works project, it must furnish to the government a performance bond for the protection of the government, and a payment bond “for the protection of all persons supplying labor and material in carrying out the work provided for in the contract for the use of each person.” 40 U.S.C. § 3131(b)(2). As the United States Supreme Court has explained,

Ordinarily, a supplier of labor or materials on a private construction project can secure a mechanic's lien against the improved property under state law. But a lien cannot attach to Government property, so suppliers on government projects are deprived of their usual security interest. The Miller Act was intended to provide an alternative remedy to protect the rights of these suppliers.

F.D. Rich Co. v. United States for use of Industrial Lumber Co., 417 U.S. 116, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974) (citations omitted). Accordingly, Third–Party Plaintiff Great American Insurance Company (“GAIC”), as surety, issued payment and performance bonds for the project on behalf of MVI, as principal, and in favor of LANS, as obligee.

In consideration for GAIC's issuing the bonds, MVI, Flinchum Construction Company, Inc. (“Flinchum”), Michael Vigil, and Melissa Seligman–Vigil (“the Vigils”) each executed an Indemnity Agreement in favor of GAIC. ¹ Under this agreement, MVI agreed to indemnify GAIC for any losses, costs, or expenses incurred with regard to the payment bond, including payments against the bond. The Indemnity Agreement also granted GAIC the right to investigate any claims against the bonds; to gain access to MVI's books, records, and accounts; and to require MVI to pay collateral as soon as liability existed or was asserted against GAIC, regardless of whether GAIC had actually made any payment.

Custom Grading, Inc. (“CGI”), a subcontractor on the project, has filed suit against MVI and GAIC under the Miller Act, alleging that MVI has failed to pay CGI for its labor and materials (Doc. 1). CGI seeks judgment against MVI for the amount owed and for unjust enrichment, and against GAIC for payment from the judgment bond. In response, GAIC has filed third-party claims against MVI, Flinchum, and the Vigils, alleging that they failed to fulfill their obligations as indemnitors, and bringing claims for breach of express contract and injunctive relief—specific performance against all indemnitors, and common law indemnification against MVI (Doc. 4).

In turn, the Vigils have brought counterclaims against GAIC for breach of implied covenant of good faith and fair dealing; violation of New Mexico's Unfair Insurance Practices Act; violation of the New Mexico Unfair Practices Act; tortious interference with existing contractual relations; and prima facie tort. GAIC now asks this Court to dismiss each of the Vigils' counterclaims.

LEGAL STANDARD

To survive a motion to dismiss, a complaint must contain sufficient factual allegations which, if true, “state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “The allegations must be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has a claim for relief.” Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008). In reviewing a motion to dismiss, the Court accepts all well-pleaded factual allegations in the complaint as true and then determines whether the complaint plausibly states a legal claim for relief. Gallagher v. Shelton, 587 F.3d 1063, 1068 (10th Cir.2009). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Smith v. United States, 561 F.3d 1090, 1098 (10th Cir.2009) (quoting Sutton v. Utah State Sch. for Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.1999)).

DISCUSSION

The Vigils allege that GAIC improperly interfered with their relationship with the subcontractors on the federal project. They argue that pursuant to a “paid upon payment” provision in the subcontracts, the subcontractors were entitled to payment for their work only after the Vigils received payment from LANS, and that the subcontractors also agreed that any disputes arising from the subcontracts would be resolved through arbitration. However, according to the Vigils, GAIC proceeded to interfere with this arrangement by communicating directly with the subcontractors, instructing them not to communicate with MVI, and promising payment to resolve claims without resorting to the arbitration agreements. By doing so, the Vigils allege, GAIC unreasonably interfered with MVI's ongoing discussions with subcontractors to resolve claim and payment issues, because as a result the subcontractors ceased further discussions with MVI. The Vigils also assert that GAIC accrued unnecessary fees in the process of communicating with the subcontractors, for which it improperly claims indemnity.

Conversely, GAIC argues that it took action only because several of the subcontractors made claims on the payment bond due to MVI's failure to pay them. Pursuant to the Indemnity Agreement, GAIC proceeded to investigate the subcontractors' claims, but despite repeated requests, MVI has not provided the information necessary to do so fully, nor has MVI paid collateral when requested to do.

I. Count I—Breach of Implied Covenant of Good Faith and Fair Dealing

In their first claim, the Vigils assert that GAIC's communications with the subcontractors breached the covenant of good faith and fair dealing implied in the Indemnity Agreement. GAIC argues that the Vigils have failed to state a claim as a matter of law. The Court agrees to the extent that the Vigils bring a claim sounding in tort, but disagrees to the extent that the Vigils bring a claim sounding in contract.

A. Claim Sounding in Contract

The New Mexico Supreme Court has held that “[w]hether express or not, every contract imposes upon the parties a duty of good faith and fair dealing in its performance and enforcement,” Watson Truck & Supply Co., Inc. v. Males, 111 N.M. 57, 60, 801 P.2d 639, 642 (1990), and has recognized a cause of action for breach of this duty sounding in contract. See Bourgeous v. Horizon Healthcare Corp., 117 N.M. 434, 439, 872 P.2d 852, 857 (1994) (recognizing the covenant of good faith and fair dealing in employment contracts that are not at will arrangements). As that court has explained,

Broadly stated, the covenant requires that neither party do anything which will deprive the other of the benefits of the agreement.... [One party]'s intentional use of the contract to the detriment of another party is wrongful, constitutes bad faith, and clearly is a breach of the covenant of good faith and fair dealing.

Watson Truck & Supply Co., Inc. v. Males, 111 N.M. 57, 60, 801 P.2d 639, 642 (1990) (internal quotation marks and citation omitted).

Here, the Vigils allege that GAIC intentionally used the “right to settle” provision of the Indemnity Agreement to their detriment, by improperly investigating the subcontractors' claims and preventing the Vigils from being able to resolve those claims as intended. The Court finds that this properly alleges a breach of the covenant of good faith and fair dealing sounding in contract.

GAIC argues that the Vigils' claim fails because “there is no plausible set of circumstances in the counterclaims under which the [Vigils] could allege breach of the [Indemnity Agreement] by GAIC.” Doc. 18 at 10. Specifically, it contends that (1) under the Indemnity Agreement, it has the right to investigate and pay bond claims, and broad discretion in how it does so; (2) “it is undisputed that MVI has not performed under the GAI,” Doc. 18 at 10; and (3) the Indemnity Agreement gives it the right to demand collateral and request other information from the Vigils, but the Vigils have not complied with these demands. However, GAIC's right to investigate and pay bond claims does not give it the right to do so in bad faith or to direct the subcontractors to disregard their...