Lambert v. Maryland Cas. Co., s. 81-C-2750

• Citation: 418 So.2d 553
• Decision Date: 21 June 1982
• Docket Number: 81-C-2756,Nos. 81-C-2750,s. 81-C-2750
• Parties: Sharon W. LAMBERT and Donald G. Lambert v. MARYLAND CASUALTY COMPANY.
• Court: Supreme Court of Louisiana

Page 553

418 So.2d 553

Sharon W. LAMBERT and Donald G. Lambert v. MARYLAND CASUALTY COMPANY.

Nos. 81-C-2750, 81-C-2756.

Supreme Court of Louisiana.

June 21, 1982.

Rehearing Denied Sept. 3, 1982.

Arthur J. Lentini, Hall, Lentini, Mouledoux & Wimberly, Metairie, for applicant in No. 81-C-2750 and for respondents in No. 81-C-2756.

Fred Clegg Strong, Guy B. Scoggin, Scoggin, Strong & Kuhner, New Orleans, for applicant in No. 81-C-2756 and for respondents in No. 81-C-2750.

Marian Mayer Berkett, Matt J. Farley, Deutsch, Kerrigan & Stiles, New Orleans, for respondents in both cases.

PIKE HALL, Jr., Justice Ad Hoc. ^*

Writs were granted to review a decision of the court of appeal reversing the district court's judgment for $9,866,739.50 in favor of plaintiffs and dismissing plaintiffs' suit for damages. Finding the result reached by the court of appeal on the merits of the case to be correct, we affirm the judgment of that court.

The factual background and procedural history of this litigation are chronicled in detail in the court of appeal opinion and in the reasons for judgment of the district court attached as an appendix to a dissenting opinion in the court of appeal. Lambert v. Maryland Cas. Co., 403 So.2d 739 (La.App. 4th Cir. 1981). There are other reported cases involving the same parties. See Bank of New Orleans & Tr. Co. v. Lambert, 373 So.2d 550 (La.App. 4th Cir. 1979), writ denied, 376 So.2d 959 (La.1979); Lambert v. Cronvich, 373 So.2d 554 (La.App. 4th Cir. 1979), writ denied, 376 So.2d 960 (La.1979); Maryland Cas. Co. v. Lambert, 612 F.2d 229 (USCA 5th Cir. 1980); Bank of New Orleans and Trust Co. v. Lambert, 409 So.2d 294 (La.App. 1st Cir. 1982).

Donald G. Lambert and his wife, Sharon W. Lambert, filed this suit against Maryland Casualty Company seeking $33,000,000 in damages allegedly resulting from actions by Maryland, surety and creditor of a road contracting corporation wholly owned by plaintiffs, which brought about the financial collapse and bankruptcy of the corporation. After trial, the district court found that Maryland acted in bad faith and without legal right when, on October 1, 1975, it notified the state and other public bodies for which the Lambert corporation was performing road construction contracts to pay all contract funds to it and that Maryland's actions triggered the financial downfall of the corporation. Damages were calculated on the basis of the trial court's assessment of the value of plaintiffs' stock in the construction company and a related corporation. Maryland appealed. The trustee of the bankrupt Lambert corporation, who unsuccessfully attempted to intervene in the trial court after judgment was rendered, also appealed. The court of appeal, in an exhaustive opinion which dealt with numerous issues raised by the parties, ultimately determined that Maryland had the legal right under the contracts between the parties and good business reasons to take the action it did and, hence, there was no liability. Plaintiffs and the trustee applied for writs, which were granted.

Plaintiffs set forth the following assignments of error:

(1) The court of appeal erred in substituting its judgment for that of the trier of fact in the absence of a finding of "manifest error";

(2) The court of appeal erred in ruling that the plaintiffs should not be allowed to proceed individually to recover damages caused by the defendant;

(3) The court of appeal erred in ruling that Maryland had a perfected assignment of the progress payments due Lambert as of October 1, 1975;

(4) The court of appeal erred in ruling that Maryland had a right to contract funds as of October 1, 1975, by reason of legal subrogation;

(5) The court of appeal erred in ruling that Maryland is not liable to Lambert for a bad-faith breach of a fiduciary relationship; and

(6) The court of appeal erred in ruling that Maryland did not actionably abuse any of the rights it may have possessed.

The trustee in bankruptcy essentially adopts the plaintiffs' assignments of error relating to Maryland's liability, but additionally urges that the court of appeal erred:

(1) In affirming the denial of the trustee's petition to intervene in the district court; and

(2) In holding there was not sufficient evidence in the record to justify substituting the trustee for the plaintiffs as the party entitled to judgment in this case.

In response, Maryland urges the correctness of the court of appeal decision finding no liability on the merits of plaintiffs' claims. Maryland further urges its other defenses asserted in the trial court and court of appeal, including:

(1) Plaintiffs' claims have prescribed because this suit was not filed within one year after the occurrence of the events complained of;

(2) Judgments rendered in related federal court actions are res judicata as to the plaintiffs' claim for damages;

(3) Plaintiffs cannot assert a cause of action belonging to the bankrupt corporation (4) Even if Maryland had no right to take the action it did, such action did not cause the financial collapse of the corporation or plaintiffs' damages;

(5) The trustee's intervention is untimely; and

(6) The damages awarded by the district court are excessive.

The primary issue in this case is whether on October 1, 1975, under the contractual relationship between the parties, there existed an effective assignment by the Lambert corporation to Maryland of contract funds due Lambert, thereby giving Maryland the legal right to direct the state and other public bodies to make payment of the contract funds to it as assignee. A second issue is whether Maryland, in exercising that right, breached its obligation of good faith performance of the contracts with Lambert or otherwise abused the rights it held. We conclude the court of appeal correctly decided these issues which are dispositive of the case.

The Lamberts were the sole stockholders of a corporation known as Donald G. Lambert Contractor, Inc., one of the state's largest road construction companies. In the normal course of business the corporation was required to furnish public works bonds under LSA-R.S. 38:2241, guaranteeing performance and payment. For many years Maryland had acted as surety on all of the corporation's bonds. In connection with the issuance of each bond the corporation and the Lamberts individually routinely executed an indemnifying agreement whereby the corporation and the Lamberts agreed to indemnify Maryland for any losses Maryland might suffer because of its execution of the bond being issued or any bonds previously or subsequently issued.

The indemnity agreement contains an assignment of the indemnitors' right, title, and interest in and to all tools, plant equipment, and materials, and in and to all subcontracts connected with the bonded contract, the assignment to be enforceable and effective should the indemnitors fail to discharge any obligations incurred in the performance of the contract, or be unable to complete the work in accordance with the terms of the contract, or in the event of any default on the part of the indemnitors under the contract, or in the event of a claim or default in connection with any other former or subsequent bonds executed for the indemnitors. Particularly pertinent to this litigation, the indemnifying agreement provides:

"In the event of claim or default under the bond(s) herein applied for, or in the event the undersigned shall fail to fulfill any of the obligations assumed under the said contract and bond(s), or in the event of claim or default in connection with any other former or subsequent bonds executed for us or at our instance and request all payments due or to become due under the contract covered by the bond(s) herein applied for, shall be paid to the Company--and this covenant shall operate as an assignment thereof and the residue, if any, after reimbursing the Company as aforesaid, shall be paid to the undersigned after all liability of the Company has ceased to exist under the said bond(s), and the Company shall at its option be subrogated to all rights, properties and interest of the undersigned in said contract, or contracts ...."

In the spring of 1974 the corporation was experiencing a severe cash flow problem because of high interest rates, the oil embargo and resulting shortage and higher cost of petroleum products, bad weather which delayed performance of and payment on major projects, and other factors. At that time the corporation had outstanding unsecured loans of $2,200,000 from the Bank of New Orleans & Trust Company and $547,000 from Hibernia National Bank in New Orleans. BNO, the Lamberts' principal bank, would not lend additional money without Maryland's guarantee of payment of any additional funds advanced and the furnishing of collateral to secure the existing indebtedness.

In May 1974 the corporation had in excess of $22,000,000 of unfinished construction contracts. In order to generate the cash needed for the corporation to continue in business an agreement was reached between the Lamberts, BNO, and Maryland, and was reduced to writing on May 31, 1974. The letter agreement signed by the Lamberts recites that because the Lambert corporation and its affiliated firms and controlling stockholders are in immediate need of financial assistance because of a cash shortage, Lambert requests that Maryland assist Lambert by guaranteeing a loan of up to $2,000,000 principal amount to be made to Lambert by the Bank of New Orleans & Trust Company. To induce BNO to extend payment terms on its existing indebtedness and to induce Maryland to guarantee and BNO to advance the additional $2,000,000, Lambert agreed, inter alia, as follows:

"1. LAMBERT recognizes that the assignment of contract funds, materials, equipment and rights in subcontracts made by LAMBERT to Maryland in the various indemnity agreements, heretofore executed by LAMBERT, are now executory. LAMBERT confirms the aforesaid indemnity...