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Fidelity & Deposit Co. of Maryland v. Casey Industrial, Inc.

United States District Court, D. Nebraska

March 19, 2014



RICHARD G. KOPF, Senior District Judge.

Casey Industrial, Inc. ("Casey") was the general contractor on a project for the construction of a power plant. Safeco Insurance Company of America ("Safeco") issued a payment bond for the benefit of Casey's subcontractors and suppliers on the project. Topps Mechanical, Inc. ("TMI, " "Topps" or "Topp's"), was a subcontractor for piping work on the project. Fidelity & Deposit Company of Maryland ("F&D") issued both a performance bond and a payment bond for TMI's subcontract. After Casey issued a notice of default, F&D provided financial and management assistance to TMI for completion of the subcontract. F&D now seeks to recover damages from Casey and Safeco, based on an assignment of claims from TMI and an alleged right to equitable subrogation.

F&D's complaint contains 7 counts, which may be summarized as follows: (1) a claim against Casey for breach of contract; (2) a claim against Casey for equitable subrogation; (3) a claim against Casey for breach of an implied duty of good faith and fair dealing by failing to disclose to TMI the actual quantity of cold small bore ("CSB") piping that would be required on the project, about which Casey allegedly had superior knowledge; (4) a claim against Casey for constructive acceleration; (5) a claim against Casey for constructive changes; (6) a claim against Casey for unjust enrichment; and (7) a claim against Safeco on its payment bond.

Casey has moved for partial summary judgment (1) dismissing all claims associated with the alleged scope growth in CSB piping on the project, including Count III, and (2) dismissing Count II (equitable subrogation claim) and capping damages recoverable under the remaining counts to those costs that were incurred directly by TMI, with no recovery for any costs that were paid by F&D. For the reasons discussed below, the motion will be granted only with respect to the CSB piping claims.

Summary Judgment Standard

Summary judgment is proper when the evidence, viewed in the light most favorable to the non-moving party, demonstrates that no genuine issue of material fact exists, and that the moving party is entitled to judgment as a matter of law. Rester v. Stephens Media, LLC, 739 F.3d 1127, 1130 (8th Cir. 2014). An issue is "genuine" if the evidence is sufficient to persuade a reasonable jury to return a verdict for the nonmoving party. Heacker v. Safeco Ins. Co. of America, 676 F.3d 724, 727 (8th Cir. 2012). "As to materiality, the substantive law will identify which facts are material...." Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.

Summary of the Parties' Arguments

Casey contends the parol evidence rule defeats the CSB piping claims, and notes there is an integration clause in the subcontract. Casey argues that Nebraska law, which governs the subcontract, does not recognize a "superior knowledge" exception to the parol evidence rule, nor does it impose an implied duty of good faith and fair dealing with respect to contract negotiations (as opposed to performance). In response, F&D contends Casey made fraudulent misrepresentations. F&D also argues that the amount of CSB piping required for the project might naturally be the subject of a separate agreement by the parties. Casey objects that F&D did not allege fraud and maintains there is no evidence to support F&D's claims.

Casey contends F&D cannot bring an equitable subrogation claim because it acted as a volunteer, even though Casey had declared that TMI was in default. Casey now claims F&D was not required to act until the subcontract was terminated, which never occurred; Casey also claims F&D is precluded from asserting that Casey breached the subcontract because the performance bond was conditioned on Casey fulfilling its contractual obligations. Casey further claims that F&D cannot recover as an assignee for additional costs that were incurred in completing the subcontract because such costs were paid by F&D instead of TMI. F&D responds that Casey's arguments fail as a matter of law.

Undisputed Facts

This case relates to work performed on the Whelan Energy Center, Unit #2 power plant project located in Hastings, Nebraska, and owned by the Public Power Generation Agency ("PPGA"). Black and Veatch ("B&V") provided the project design and acted as the owner's construction manager for the project. Casey was awarded the contract for mechanical construction on November 7, 2008.

On December 29, 2008, Casey entered into a subcontract with TMI. The scope of work, as defined in Exhibit 3.1 to the subcontract, included, among other items, the "[s]upply and erection of cold small bore piping plus supports" (filing 63-5 at 28). Attached to Exhibit 3.1 is "a Division of Responsibility' document which is intended to identify which material/equipment will be installed by which contractor" ( id. ). The document listed numerous specifications and indicated whether they pertained to TMI or Casey, or both. Some of the specifications pertaining to TMI were marked "xx, " which was "intended to denote that this pipe is believed to be cold small bore'" ( id. at 31). It was noted that "Topps must satisfy themselves as to the amount of pipe and fittings required to complete this system" ( id. ).

When TMI prepared its bid for the subcontract work, it estimated that 10, 000 linear feet of CSB piping would be needed for the project. The estimate was prepared based on information obtained from B&V, including piping and instrumentation drawings ("P&IDs") and other drawings. TMI placed a "qualifier" in its bid stating that it had "included installation costs for a total of 10, 000 feet of 2O and smaller cold small bore piping" (filing 63-8 at 4). Casey demanded the removal of this qualifier from the bid, and it does not appear in the executed subcontract. The subcontract includes an integration clause (section 32.7), which states:

This Subcontract embodies the entire agreement of the parties. There are no promises, terms, conditions or obligations other than those contained herein. This Subcontract shall supersede all prior communications, representations or agreements, either oral or written, between the parties.

(Filing 63-5 at 19).

Section 10 of the subcontract required Casey to pay TMI a fixed price for satisfactory completion of all subcontract work; there was no separate pricing for the CSB piping work. According to F&D, the project actually required about 35, 000 linear feet of CSB piping, resulting in a cost overrun in excess of $4 million.

Section 16.4 of the subcontract required TMI to furnish a performance bond "in the form and with a surety acceptable to [Casey] per Exhibit 16.4" (filing 63-5 at 12). This was accomplished on February 25, 2009. The performance bond provides in relevant part:

Topp's Mechanical, Inc., ... herein called Principal, and Fidelity and Deposit Company of Maryland, ... herein called Surety, are held and firmly bound unto Casey Industrial, Inc., .. as Obligee, in the amount of... $18, 900, 927.00..., for the payment whereof Principal and Surety bind themselves... jointly and severally....
WHEREAS, Principal has by written agreement dated December 29, 2008, entered into a subcontract with Obligee for Whelen Energy Center Unit 2 Mechanical Construction Project..., which subcontract is by reference made a part hereof, and is referred to as subcontract.
NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION is such that, if the Principal shall promptly and faithfully perform said subcontract, then this obligation shall be null and void; otherwise to remain in full force and effect.
The Surety hereby waives notice of any modification or amendment to the Subcontract made in accordance with the terms thereof, and any alteration or extension of time made by or through the General Contractor.
Whenever Principal shall be, and be declared by Obligee to be in default under the subcontract, the Obligee having performed Obligee's obligations thereunder:
(1) Surety may promptly remedy the default subject to the provisions of paragraph 3 herein, or;
(2) Obligee after reasonable notice to Surety may, or Surety upon demand of Obligee, may arrange for the performance of Principal's obligation under the subcontract subject to the provisions of paragraph 3 herein;
(3) The balance of the subcontract price... shall be credited against the reasonable cost of completing performance of the subcontract. If completed by the Obligee, and the reasonable cost exceeds the balance of the subcontract price, the Surety shall pay to the Obligee such excess, but in no event shall the aggregate liability of the Surety exceed the amount of this bond. If the Surety arranges completion or remedies the default, that portion of the balance of the subcontract price as may be required to complete the subcontract or remedy the default and to reimburse the Surety for its outlays shall be paid to the Surety at the times and in the manner as said sums would have been payable to Principal had there been no default under the subcontract.

(Filing 63-11 at 2).

Section 24 of the subcontact addresses default and remedies. It provides in relevant part:

Subcontractor [TMI] shall be in default if it fails or refuses to perform any material obligation under this Subcontract on its part to be performed. If Subcontractor fails within three (3) business days after written notice thereof by Contractor [Casey] to commence and continue satisfactory correction of such default with diligence and promptness, Contractor shall have any or all of the following remedies:
24.1 Contractor may complete or perform the Subcontract Work... and charge the cost thereof to Subcontractor....
24.2 Contractor may contract with one or more additional parties to perform... and charge all direct and indirect costs thereof to Subcontractor....
24.3 In the event Contractor elects to perform the Subcontract Work or contracts with another subcontractor by virtue of Subcontractor's default, Contractor or such replacement subcontractor may lake and use any materials, implements, equipment, appliances or tools furnished by, belonging or delivered to Subcontractor and located at the Project site only if Subcontractor expressly agrees in writing to permit such taking and use...
24.4 Contractor may withhold payment of any moneys otherwise due Subcontractor pending corrective action to the extent required by and to the satisfaction of Contractor.
24.5 If upon a second notice, Subcontractor fails to commence and continue correction of the default within ten (10) business days, Contractor may terminate this Subcontract, in which event Subcontractor shall be liable for the costs of completing Subcontract Work.
24.6 The foregoing remedies are not exclusive. Contractor shall be entitled to all remedies available at law or equity.
24.7 Notwithstanding the forgoing, if the event of default would cause work cessation, then Contractor may require that Subcontractor immediately commence and continue correction of the default. Subcontractor's failure to immediately commence and continue correction or the inadequacy of Subcontractor's efforts to cure the default will give Contractor grounds to terminate this Subcontract, in which event Subcontractor shall be liable for the costs of completing the Subcontract Work.

(Filing 63-5 at 15-16).

On November 19, 2009, Casey directed TMI to accelerate its work because it was failing to perform to the project schedule. TMI was advised that should it fail to comply with this directive, "Casey shall, on 11-24-2009, provide notice of default in accordance with Section 24 of the Subcontract" and, "[a]bsent timely cure by Topp's, Casey shall exercise Casey's option under Subsection 24.1" (filing 71-8 at 10). Also on November 19, 2009, Casey sent a letter to F&D advising that "[s]hould Topp's fail to meet the requirements of their subcontract and the notice sent today, Casey will place them in default and be forced to call upon the attached bonds" ( id. at 8).

On December 10, 2009, Casey sent a "Written Notice of Default" to TMI (filing 63-12 at 2). The notice stated:

Following the written notice of default delivered to you on November 19, 2009 by Steve Brague, and Topp's continued failure to cure such default in a timely manner (namely recovery of the project schedule), Casey is taking steps to exercise our rights under Subcontract XXXXXXX-XX, Section 24, Default and Remedies. Your failure to satisfactorily cure your schedule of work and show any recovery towards the project schedule requirements, the written notice of default and cure from PPGA to Casey, and the recent evidence today of your inability to meet your financial obligations, forces Casey to take the following steps:
1. Per Section 24.1, Casey shall perform the work in the areas as listed in the meeting minutes of December 3, 2009 and charge the cost of such work to Topp's per the rates and mark-up as previously communicated to you on December 10, 2009 at 8:00am, MST.
2. Casey will also send notice to your Surety requesting their immediate participation to satisfy all of Topp's contractual requirements.
Such default and remedies as detailed above, shall in no way cause any work cessation on the part of Topp's Mechanical. Casey fully expects Topp's to work with their surety in an effort to recover their schedule, meet their financial obligations as it relates to this project, and complete all work under this subcontract.

( Id. ) Casey also sent a letter to F&D on December 10, 2009. It stated in part:

Topp's has been behind schedule for some time and has continued to progress further behind schedule. Through an ongoing effort of letters, meetings, and other communications, Casey has been requesting from Topp's recovery schedules, cash flow projections, vendor information, and other documents we feel necessary to evaluate their ability to recover the schedule and meet all financial obligations. To date Topp's has failed to meet these requirements. Subsequently, Casey has received a notice of default from our customer PPGA citing the short falls of Topp's as it relates to the schedule. Casey has been placed into a cure period in which Casey must show PPGA our recovery plan, including the work of Topp's.
Due to the ongoing failures of Topp's to provide required progress to meet schedule obligations, the recent letter of default from PPGA to Casey, and today's confirmation of Topp's inability to meet their financial obligations (i.e. Casey's last minute advance of payroll in the amount of $670, 534.73, which is the 3rd such advance), Casey has officially placed Topp's Mechanical in default of their Subcontract XXXXXXX-XX. Based on information ...

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