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Aztec Engineering Group, Inc. v. Liberty Mutual Insurance Co.

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

October 17, 2016

AZTEC ENGINEERING GROUP, INC., TECNICA Y PROYECTOS S.A., Plaintiffs,
v.
LIBERTY MUTUAL INSURANCE COMPANY, FIDELITY AND DEPOSIT COMPANY OF MARYLAND, XL SPECIALTY INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, Defendants.

          ORDER

          HON. JANE MAGNUS-STINSON, JUDGE

         Presently pending before the Court is Defendants Liberty Mutual Insurance Company, Fidelity and Deposit Company of Maryland, XL Specialty Insurance Company, and American Home Assurance Company's (collectively, the “Co-Sureties”) Motion to Dismiss Or, In the Alternative, Stay Litigation and Compel Arbitration. [Filing No. 9.] Plaintiffs Aztec Engineering Group, Inc., and Tecnica y Proyectos S.A. (collectively, “Aztec-TYPSA”) oppose the Co-Sureties' motion. [Filing No. 18.] For the reasons that follow, the Court denies the Co-Sureties' motion.

         I. Standard of Review

         The Federal Arbitration Act (“FAA”) provides that arbitration clauses in commercial contracts “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. The statute “is Congress's manifestation of a national policy favoring arbitration and results in the placement of arbitration agreements on equal footing with all other contracts.” Zurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 580 (7th Cir. 2006). The FAA places arbitration clauses “on equal footing with other contracts, ” and any preference for arbitration is “reserved for the interpretation of the scope of a valid arbitration clause.” Janiga v. Questar Capital Corp., 615 F.3d 735, 740 (7th Cir. 2010). “Whether or not a company is bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the court on the basis of the contract entered into by the parties.” Zurich, 466 F.3d at 580.

         II. Background

         A. The Project

         On April 8, 2014, the Indiana Finance Authority (“IFA”) awarded I-69 Development Partners LLC (the “Developer”) a Public-Private Agreement (the “PPA”) pursuant to Indiana Code § 8-15.5-1-1, et seq., for the Developer to design, build, finance, operate, and upgrade approximately 21 miles of existing State Road 37 into an interstate highway (the “Project”). [Filing No. 1 at 3.] Corsan Corviam Construcción, SA (“Corsan”), entered into a Design-Build Contract with the Developer for the design and construction work of the Project. [Filing No. 1 at 4.] Corsan later assigned the Design-Build Contract to its affiliate Isolux Corsan, LLC (“Isolux Corsan”). [Filing No. 1 at 4.]

         Pursuant to the terms of the PPA and the Design-Build Contract, Isolux Corsan later executed a payment bond (the “Payment Bond”) with the Co-Sureties in the penal sum of $15, 350, 000 to ensure that payment would be made to Isolux Corsan's subcontractors on the Project. [Filing No. 1 at 4; Filing No. 1-3.]

         B. The Engineering Services Agreement

         On August 15, 2014, Corsan entered into an Engineering Services Agreement (the “ESA”) with Aztec-TYPSA for Aztec-TYPSA to be a design consultant subcontractor on the Project. [Filing No. 1 at 4; Filing No. 1-4.] The ESA was assigned by Corsan to Isolux Corsan. [Filing No. 1 at 4; Filing No. 1-5 at 1.] Aztec-TYPSA assumed various obligations under the ESA to perform design-related services on the Project. [Filing No. 1-4 at 8.] Pursuant to the ESA, Isolux Corsan was permitted to withhold payment if it disputed “any items . . . for any reason, including the lack of supporting documentation or suspected defective or negligently performed Services . . . .” [Filing No. 1-4 at 17.] If it disputed items, Isolux Corsan was to withhold payment for the disputed items, promptly notify Aztec-TYPSA of the dispute, and request clarification or remedial action. [Filing No. 1-4 at 17.] Payment for undisputed items was to be made within sixty days, although full or partial payment was not evidence of Aztec-TYPSA's satisfactory performance of the services covered by the ESA. [Filing No. 1-4 at 17.]

         Aztec-TYPSA submitted invoices to Isolux Corsan and alleges that until April 2015, the majority of them were not disputed or only partially disputed. [Filing No. 1 at 5.] Aztec-TYPSA contends, however, that since April 2015, Isolux Corsan failed to make the required payments within the sixty-day period. [Filing No. 1 at 5.] Aztec-TYPSA alleges that it served Isolux Corsan with a notice of default in April 2015, but Isolux Corsan made payment and cured that default. [Filing No. 1 at 6.] Aztec-TYPSA served Isolux Corsan with a second notice of default on March 21, 2016, listing twenty unpaid invoices totaling $4, 811, 869.62. [Filing No. 1 at 6-7; Filing No. 1-6 at 1-2.] Isolux Corsan made partial payments, [Filing No. 1 at 7], but Aztec-TYPSA served it with a third notice of default on June 9, 2016 after additional amounts became overdue, [Filing No. 1 at 7; Filing No. 1-9].

         On June 1, 2016, Aztec-TYPSA suspended services under the ESA. [Filing No. 1 at 5.] It alleges that to date, Isolux Corsan owes it an outstanding balance of $4, 110, 973.17. [Filing No. 1 at 8; Filing No. 1-11.]

         C. Payment Bond Claim and Federal Lawsuit

         On March 29, 2016, Aztec-TYPSA served a Statement of Amount Due on the Co-Sureties, representing that it was owed $4, 679, 369.62 for work performed and services rendered pursuant to the ESA. Filing No. 1 at 8;Filing No. 1-12 at 4.] It provided updates to the Co-Sureties as ...


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