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Travelers Casualty and Surety Co. v. Consolidated City of Indianapolis

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

October 31, 2014



MARK J. DINSMORE, District Judge.

At the core of this action lies a Construction Contract to which the Defendant Consolidated City of Indianapolis ("City") and non-party Amtech Construction, Inc. ("Amtech") were parties. In 2008, Amtech achieved substantial completion of the project, the Forest Park/Southport Corridor of the City's Septic Tank Elimination Program (STEP), but Amtech filed articles of dissolution with the Secretary of State of Indiana in 2009, before final payment was made. As surety to Amtech, Travelers Casualty and Surety Company of America ("Plaintiff") is the assignee of Amtech's contract rights pursuant to their Indemnity Agreement, and in 2013 Plaintiff filed this suit, alleging that the City and Citizens Energy Group ("Defendants") breached the Construction Contract. In response, Defendants filed a Counterclaim pursuant to the Performance Bond, to which Plaintiff is a signatory as surety, asserting that Plaintiff is now liable to Defendants for Amtech's alleged default on the Construction Contract and alleged inability to reimburse the Defendants for expenses incurred in making good the defaults on the project.

The matter is now before the Court on two motions for partial summary judgment. First, Plaintiff moves for summary judgment dismissing Defendants' Counterclaim against it on the basis that the Construction Contract and Performance Bond were assigned to the CWA Authority ("CWA"), an affiliate of Defendant Citizens Energy Group ("Citizens"), in an Asset Purchase Agreement, and thus Defendants do not have standing to bring a claim of default and breach of contract against Plaintiff. [Dkt. 49.] In response, Defendant Citizens moves for summary judgment dismissing Plaintiff's claim against it on the basis that it was not a party to the Construction Contract, that it is not the assignee of the Construction Contract or Performance Bond.[1] [Dkt. 58.] For the reasons set forth below, the Court GRANTS Plaintiff's motion for summary judgment on Defendants' Counterclaim against it. Additionally, Defendant Citizens's motion for summary judgment on Plaintiff's claims against it is GRANTED.

I. Legal Standard

Rule 56 of the Federal Rules of Civil Procedure mandates that the district court "shall grant summary judgment 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 moving party "always bears the initial responsibility" to show, through the "pleadings, depositions, answers to interrogatories, and admissions on files, together with the affidavits, if any, " that there is an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the party moving for summary judgment would not bear the burden of proving a certain element of a claim or defense at trial, it becomes the nonmoving party's burden to prove the existence of that essential element, or a genuine issue of material fact pertaining thereto. Id. at 323-24.

In ruling on a motion for summary judgment, the court must construe all evidence in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 601 (1986). When the complete record, presented in favor of nonmoving party, could lead no rational juror to find for the nonmoving party, "there is no genuine issue for trial." Id at 599. "[U]pon proper showings of the lack of a genuine, triable issue of material fact, " the granting of summary judgment promotes the "just, speedy and inexpensive determination of every action" that is the very purpose of the Federal Rules of Civil Procedure. Celotex, 477 U.S. at 327.

II. Undisputed Facts

In December of 2005, Plaintiff entered into an Indemnity Agreement with Amtech. [Dkt. 51-1.] As an inducement to Plaintiff and in consideration of Plaintiff's "execution and/or delivery of one or more Bonds, refraining from canceling one or more Bonds, and/or assumption of obligations by [Plaintiff] of one or more Bonds, " Amtech agreed that, in pertinent part, in the event of Default (such as its insolvency or abandonment of any contract), Plaintiff has "a right in its sole discretion" to, among other things, take immediate possession of any of Amtech's Property (such as any Contract, any and all sums due under a Contract, and all related damages claims and proceeds), to "assert or prosecute any right or claim, " and to "take immediate possession of Contract funds whether earned or unearned." [ Id. at 2-3.] These relevant portions of the Indemnity Agreement are the terms upon which Plaintiff brings its breach of contract claim against Defendants. [Dkt. 1 at 5.]

One year later, the City's Board of Public Works voted unanimously to award the "Forest Park/Southport Corridor Septic Tank Elimination Program" project ("the Project") to Amtech for the bid amount of $4, 975, 055.00.[2] Accordingly, on December 26, 2006 Plaintiff, as surety to Amtech, executed both a Payment Bond and a Performance Bond, each binding Plaintiff to the City in the penal sum of the bid amount of $4, 975, 055.00. With the Bonds properly issued, the City and Amtech entered into the Construction Contract on January 3, 2007, [3] which required Amtech to achieve Substantial Completion of the Project by December 1, 2007 and Final Completion of the Project by February 1, 2008. [Dkt. 13-2 at 3, 5.]

For reasons unspecified by any party to this suit, Amtech did not achieve Substantial Completion of the Project until May 9, 2008, which was certified by an agent of the Department of Public Works on July 14, 2008. [Dkt. 13 at 2.] Accordingly, Plaintiff executed its consent to Final Payment on August 19, 2008. [Dkt. 51-3.] United Consulting performed a final walk through of the Project site on August 28, 2008, creating a sixteen-item Final Punch List, fourteen items of which were crossed off when the list was revised three months later, noting the date of completion. [Dkt. 56-2.] There is no further evidence of record regarding an update to or communication regarding the two remaining Punch List items, and at no point was Final Payment ever made. [ See Dkt. 13 at 5.]

On April 1, 2009, Amtech informed the City that all payments pursuant to the Construction Contract, paid to both Amtech and Plaintiff, should be sent directly to Plaintiff. [Dkt. 13 at 5.] At that time, the actual retainage available to Amtech was $171, 619.92, as estimated by the Construction Administrator of the City's Department of Public Works. [ Id. ] Defendants then presumed Amtech to be insolvent, as it voluntarily filed articles of dissolution with the Secretary of State of Indiana one month later, which dissolution was certified by the Secretary of State on May 21, 2009. [ Id. at 6.] The City did not give Amtech written notice of any default prior to its dissolution, but the City maintains that Final Completion was not achieved. [Dkt. 63-1 at 9.]

One year later, in response to Plaintiff's May 7, 2010 inquiry regarding the status of the Project and the final payment, a City administrator informed Plaintiff's counsel that the City needed a "revised notice from Amtech, in order to issue a one-party check" to Plaintiff, since Amtech's last notice referred to the payment as being paid to both Amtech and Plaintiff. [Dkt. 56-3.] Additionally, the administrator informed Plaintiff's counsel that the City was still in the process of gathering information regarding costs incurred by the City for repairs to the Project and still investigating complaints pertaining to the ditches and sidewalks that were affected by the Project. [ Id. ] One month later, the City's administrator informed Plaintiff's counsel that there were "substantial performance issues" related to the Project, which Plaintiff contends was the first notice to Plaintiff of such dissatisfaction with Amtech's performance on the Construction Contract. [Dkt. 56-4.] At some time between 2008 and 2011, the City spent $5, 413.72 to make repairs to the sewer system related to the project, and the City also claims to have incurred unknown expenses in repairs to some of the roads within the Project's area. [Dkt. 63-1 at 11.] To date, these unknown road repair expenses have not yet been detailed. [ See Dkt. 49-1 at 10.]

In August of 2010, the City entered into an Asset Purchase Agreement with the CWA Authority, to which Defendant Citizens was a signatory in its role as trustee of the public utilities. [Dkt. 13-1 at 1-2; Dkt. 63-1 at 7-8.] Pursuant to the terms of the Asset Purchase Agreement, the City sold "all right, title and interest... in, to and under all contracts, licenses and leases related to the System to which the Sanitary District or the City is a party, " including all construction contracts and surety bonds. [ Id. 13-1 at 19.] The agreement also provides that the CWA Authority assumes all of the City's liabilities related to the Acquired Assets and all of the City's performance obligations under the assigned contracts, if assignable. [ Id. at 20, 22.] Additionally, the Asset Purchase Agreement clarifies that the "Purchaser shall finance, construct, implement and complete the Septic Tank Elimination Projects ("STEP") set forth in Schedule 2.04(d) upon the terms and in the timeframe established therein." [ Id. at 21 (emphasis in original).] Finally, it is significant to the motions before the Court that the City retained a number of property improvements located on the Belmont Wastewater Treatment Plant, including certain roads. [ See Dkt. 56-9.] The Asset Purchase Agreement did not take effect until August 26, 2011, when it was certified by the Mayor of the City and the president and CEO of Citizens. [ See Dkts. 56-6, 56-7.] In its responses to Plaintiff's interrogatories, the City confirmed that it "sold all right, title, and interest in the wastewater system" to the CWA. [Dkt. 63-1 at 7.]

Meanwhile, in February of 2011, DLZ Indiana, LLC ("DLZ") conducted a field investigation of the post-construction conditions of the Project site. [ See Dkt. 56-1.] In its report, DLZ observed two subgrade issues: (1) voids due to loss of backfill materials and (2) settlement due to consolidation or migration of backfill material. [ Id. at 2.] DLZ further estimated that the cost of the repair work necessary to rectify the issues could total $604, 500.00. [ Id. at 4.] The City forwarded the DLZ Report and estimate to Plaintiff's counsel, noting that, once particular defects were identified, the City administrator would contact Plaintiff's counsel regarding how the repairs would be handled. [ Id. at 1.] In response to Plaintiff's First Set of Interrogatories, which the City received three years after the DLZ Report was conducted, the City confirmed that "[t]he work identified in the DLZ Report has neither ...

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