Am. Fid. Fire Ins. Co. v. Construcciones Werl, Inc.

Decision Date26 November 1975
Docket NumberCivil No. 576-1973
Citation12 V.I. 325
CourtU.S. District Court — Virgin Islands

Motions for summary judgment and dismissal, by parties involved in interpleader action arising from transactions whereby developer hired contractor and mortgaged the development with a party which assigned the remaining mortgage proceeds to the Department of Housing and Urban Development upon contractor's bankruptcy, and surety of contractor hired another contractor to finish the work. The District Court, Young, J., held, inter alia, that the surety was a third-party creditor beneficiary under the mortgage agreement and was entitled to have the funds in HUD's hands, which the court decided were undisbursed mortgage proceeds, and which had been assigned to HUD by reason of its role as insurer of mortgagee's interest, paid into the registry of the court and ultimately to be paid to the parties entitled to them, and held also that the claims of those who could recover from surety's net worth would be severed from the claims of those who could recover only from the amount of surety's bond issued in favor of original contractor.





WILLIAM T. HOLMES, ESQ., Christiansted, St. Croix, V.I., for American Fidelity Fire Insurance Company

FEUERZEIG & ZEBEDEE, ESQS. (JOHN A. ZEBEDEE, ESQ.), St. Thomas, V.I., for Construcciones Werl, Inc.

JULIO A. BRADY, United States Attorney (Office of the United States Attorney), St. Thomas, V.I., for Department of Housing and Urban Development

ROBERT H. RUSKIN, ESQ., Christiansted, St. Croix, V.I., for Puerto Rico Line, Ltd., San Juan, Puerto Rico

MULLER & MLNTZ, P.A., ESQS. (JOSEPH A. CALDWELL, ESQ.), Miami, Florida, for Napoleon Steel Contractor, Inc.

NICHOLS & SILVERLIGHT, ESQS. (IRWIN J. SILVERLIGHT, ESQ.), Christiansted, St. Croix, V.I., for Tropic Plumbing, Inc.


ROSSKOPF & DEMA, ESQS. (JOHN DEMA, ESQ.), Christiansted, St. Croix, for Charles Tait, Trustee for Quantum Development Corporation
DANIEL W. AMBROSE, ESQ., St. Thomas, V.I., for Virgin Islands Foundation for Housing and Economic Development

WILLIAM W. BAILEY, ESQ., St. Thomas, V.I., for Universal Leaf Tobacco Company, Inc.

WARNER ALEXANDER, ESQ., Christiansted, St. Croix, for Berens Mortgage Bankers, Inc.

YOUNG, District Judge


Plaintiff American Fidelity Fire Insurance Company (hereinafter "AFFIC" or "surety") has moved this Court pursuant to Fed. R. Civ. P. 56 for an order compelling defendant Carla A. Hills, Secretary of Housing and Urban Development (hereinafter "HUD"), to pay some $220,268.00 in retainages, allegedly owing on the "Thomasville" Project, into court. Defendant HUD, in addition to opposing the granting of AFFIC's motion, has moved for a dismissal of plaintiff's complaint pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(2). Finally, defendant Construcciones Werl, Inc. (hereinafter "WERL") has also movedfor an order of dismissal alleging, like HUD, that this is not a proper interpleader action.


The history of this litigation is rather long and complex. Back in December of 1971, plaintiff AFFIC, a New York bonding company, became a surety on two federally subsidized housing projects1 in the Virgin Islands (the construction contracts for which had been awarded to Quantum Development Corporation (hereinafter "QUANTUM" or "CONTRACTOR) by the Virgin Islands Foundation forHousing and Economic Development (hereinafter FOUNDATION" or "MORTGAGOR") by issuing payment and performance bonds. The furnishing of such bonds, in satisfaction of the requirements of the Miller Act, 49 Stat. 793 (1935), as amended 40 U.S.C. §§ 270a-e (1970), is standard practice when awarding construction contracts for public buildings to private contractors. The payment bond guarantees that any materialmen or subcontractors remaining unpaid by the general contractor will be remunerated by his surety up to a certain amount (in this instance, $387,-500.00 at each project) while the performance bond assures the owner and his mortgagee that in the event that the general contractor defaults before completing the project, they will be saved harmless up to a contractually prescribed monetary limit (also $387,500.00 per project in this situation).

Forming the predicate for this litigation, QUANTUM, the general contractor, ran into financial difficulties and was ultimately adjudicated a bankrupt in June of 1972. As part of the denouncement of the bankruptcy hearings, the referee entered an order on August 24, 1972 requesting the surety to fulfill the requirements and obligations expressed in the construction contracts for the housing projects. AFFIC thereupon entered into two separate contracts with defendant WERL regarding completion of the "Thomasville" project—which completion was allegedly effectuated in June of 1973. Since that time, AFFIC has attempted to obtain first from the original mortgagee, Berens Mortgage Bankers, Inc. (hereinafter "BERENS" or "MORTGAGEE"), and then from its assignee (HUD), some $220,268.00 in retainages in order to apply these unpaid sums towards the substantial losses which it suffered in fulfilling its role as surety.

In addition to actively pursuing first BERENS and then HUD, plaintiff AFFIC apparently also attempted some"self-help" cost-cutting measures of its own for on September 11, 1973, defendant WERL filed suit in the Superior Court of Puerto Rico, District of San Juan, alleging that AFFIC owed it in excess of $80,000.00 for its part in finishing the "Thomasville" project after QUANTUM's default. This filing, it may be assumed, was the catalyst precipitating AFFIC's own breach of contract action against WERL which was filed in this Court on November 15, 1973. Following some intricate procedural jockeying in which AFFIC sought to amend its complaint in order to sound in rule interpleader and WERL moved to dismiss the suit for AFFIC's failure to state a compulsory counterclaim, I allowed AFFIC to amend in view of the possibility that the retainages in question might be subject to multiple adverse claims, denied WERL's Fed. R. Civ. P. 13(a) motion, and stayed the Puerto Rican action while enjoining all interpleader defendants from instituting, maintaining, or prosecuting any suit at law or in equity against AFFIC with respect to the Thomasville retainages. (See Memorandum Opinion and Order filed by this Court on December 18, 1974.)

Ten months have come and gone and the parties are before this Court again. The procedural posture of this litigation has changed in the interim and several parties have been added or dropped. But the basic issues, like "Old Man River", just keep rolling along.

It should be apparent that in developing a matter for trial, some time needs be expended in clarification and crystallization of the disputed points. Admittedly, the period of gestation for this stage of preparation will vary depending, among other factors, upon the number of parties to the lawsuit and the complexity of the issues. But at some ill-defined mark on the time-space continuum, the scales of justice are thrown out of equilibrium when delay and obfuscation are allowed to run unchecked. Justice is poorlyserved when unnecessary parties are required to needlessly participate ad infinitum and/or non-related claims are forced into juxtaposition with each other. And without expressly declaring that such a point has been reached here, it would be dishonest if the Court did not admit that this factor has played some role in its ruling on the submitted motions.


On December 18, 1974, I entered an order restraining WERL from maintaining its breach of contract action against AFFIC in the Superior Court of Puerto Rico. In order to arrive at that decision, the Court first found that it was entertaining a Rule 22 interpleader action. Then, having determined the nature of the action before it, the Court buttressed its granting of a preliminary injunction by declaring it to be "necessary in aid of jurisdiction". I ruled the interpleader action would lose a great deal of its effectiveness if AFFIC were forced to defend, in several jurisdictions, multiple actions all arising out of the same transaction. Both judicial economy and the effective resolution of all claims emanating from the "Thomasville" default led me to believe that all parties asserting a colorable claim to the retainages in question should be compelled to appear before this Court.

Shortly thereafter, WERL filed a motion for reconsideration in which it asked me to vacate the aforementioned order and to dismiss the interpleader action as against it. At that time, WERL argued that the funds which AFFIC allegedly owed to it arose out of their post-bankruptcy contract and not from any prebankruptcy transactions. Accordingly, it was not claiming under either the original QUANTUM contract or under the payment or performance bonds executed by AFFIC pursuant to its role as surety.Moreover, mention was also made of the fact that AFFIC had been actively participating in the Puerto Rican suit. Therefore, WERL asserted that it was not a proper interpleader defendant and consequently the Puerto Rican action should be allowed to continue.

Upon hearing oral argument and reviewing the submitted briefs, this Court decided to reaffirm its earlier position and accordingly denied WERL's motion for reconsideration and dismissal. I wrote that the preliminary injunction was only a tentative measure, "essentially insuring that a future determination that Construcciones Werl is a proper interpleader-defendant in the instant action would not be rendered meaningless by a prior judgment by the Puerto Rican Court. If, on the other hand, WERL is hereafter determined to be an improper...

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