Cincinnati Ins. Co. v. Dynamic Development Group
| Decision Date | 17 September 2004 |
| Docket Number | No. 1:00CV00280.,No. 1:00CV00282.,No. 1:00CV00283.,No. 1:00CV00281.,No. 1:00CV00284.,1:00CV00280.,1:00CV00281.,1:00CV00282.,1:00CV00283.,1:00CV00284. |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | THE CINCINNATI INSURANCE COMPANY, the Cincinnati Casualty Company, and the Cincinnati Indemnity Company, Plaintiffs, v. DYNAMIC DEVELOPMENT GROUP, LLC., and BB & T Bank Of South Carolina, Defendants. |
Andrew Albert Vanore, III, Derek M. Crump, Brown Crump Vanore & Tierney, L.L.P., Raleigh, NC, Thomas E. Crafton, Timothy D. Martin, Crafton Martin Ogburn & Zipperle, PLLC, Louisville, KY, for Plaintiff.
Stephani Wilson Humrickhouse, Nicholls & Crampton, P.A., John Keating Wiles and Joseph Blount Cheshire, V., Cheshire Parker Schneider Bryan & Vitale, Andrew Albert Vanore, III, Brown Crump Vanore & Tierney, L.L.P., Raleigh, NC, Edmund L. Gaines, Homseley Jones Gaines & Fields, Statesville, NC, William Everett Moore, Jr., Gray Layton Drum Kersh Solomon Sigmon & Furr, P.A., Gastonia, NC, E. Wade Mullins, III, Henry P. Wall, Bruner Powell Robbins Wall & Mullins, LLC, Columbia, SC, Seth R. Cohen, Smith James Rowlett & Cohen, Greensboro, NC, John R. Buric, James McElroy & Diehl, P.A., Christian Riley Troy, Helms Cannon Hamel & Henderson, Charlotte, NC, for Defendant.
This matter is again before the Court on various post-trial motions filed by Plaintiff Cincinnati Insurance Co.1 ("Cincinnati" or "Plaintiff"), Defendant Dynamic Development Group LLC ("DDG"), and Defendant BB & T Bank of South Carolina ("BB & T"). Cincinnati has four Motions before the Court: (1) Cincinnati's Objections to BB & T's Bill of Costs [Document # 233]; (2) Motion to Redesignate Objection to Bill of Costs as Motion to Disallow and Motion for Extension of Time the Same ("Motion to Redesignate and Extend") [Document # 237]; (3) Motion to Recover Attorney Fees Pursuant to Rule 54(d)(2) ("Motion for Attorneys' Fees") [Document # 244]; and (4) Motion to Recover Attorney Fees Pursuant to Rule 11 ("Rule 11 Motion") [Document # 246]. Cincinnati has also filed a Bill of Costs [Document # 236] to be taxed against DDG. DDG has filed two Motions: (1) Motion for New Trial or in the Alternative Judgment as a Matter of Law ("Motion for New Trial/JMOL") [Document # 227] and (2) Motion for Disallowance of Cincinnati's Bill of Cost ("DDG's Motion for Disallowance") [Document # 241]. BB & T has filed one Motion, a Motion to Strike Cincinnati's Filing Entitled "Cincinnati's Objection to BB & T's Bill of Costs" ("Motion to Strike") [Document # 234]. BB & T has also filed a Request for Taxing of Costs [Document # 231] to be taxed against Cincinnati.
The Court fully discussed the facts surrounding this case in its October 2, 2003, Memorandum Opinion ("Summary Judgment Opinion") [Document # 210]. Cincinnati Ins. Co. v. Centech Bldg. Corp., 286 F.Supp.2d 669 (M.D.N.C.2003). As such, the Court will only restate those facts relevant to a disposition of the Motions currently before the Court.2
This case arose from a large-scale construction project in which Performance and Payment Bonds and a Dual Obligee Rider, issued in connection with the loan for the project, were allegedly fraudulently created. On September 10, 1990, Cincinnati entered into an Agency Agreement with Massey & Associates, an independent insurance agency, and its president, William H. Massey ("Massey"), wherein it was agreed that Massey & Associates and Massey would act as sales agents for Cincinnati. Some years later, on August 25, 1995, Massey was given a Letter of Authority for use with Power of Attorney from Cincinnati. This document, for the first time, conferred authority on Massey to execute surety bonds on behalf of Cincinnati. The Letter of Authority was sent to the Massey Agency along with a "bond kit" which contained, among other things, an embossed Cincinnati seal, bond forms, Cincinnati wafer seals, and powers of attorney ("POAs") naming Massey, and others in his agency, as Cincinnati attorneys-in-fact for the purpose of executing authorized Cincinnati surety bonds if the bonds fell within the $1,600,000 authority expressly set forth in the POAs. Massey and the authorized employees of the Massey Agency were not authorized to use the POAs for the purpose of executing Cincinnati contract bonds, including Performance and Payment bonds such as the ones at issue in this case, unless and until they received prior written approval from Cincinnati.
On October 4, 1996, Cincinnati terminated its Agency Agreement with Massey & Associates by letter and thereby revoked Massey's ability to execute any new bonds on behalf of Cincinnati. On October 7, 1996, Daniel T. McCurdy, Senior Vice President and Bond Manager for Cincinnati, wrote Massey directing him to destroy all Cincinnati powers of attorney previously provided to him and Massey & Associates by Cincinnati. Cincinnati also directed Massey to return all the other materials used to execute bonds, that is, the Cincinnati bond forms, the embossed seal, and the wafer seals. Two days later, Massey, on behalf of Massey & Associates, signed a Limited Agency Agreement acknowledging that the Agency Agreement with Cincinnati had been terminated as of October 4, 1996, and that Massey would act as a limited agent for Cincinnati only for the purpose of servicing policies which were issued prior to the October 4, 1996, termination date. During the time span relevant to this action, Cincinnati never informed the general public nor the North Carolina Department of Insurance of the termination of Massey's producer capacity and the creation of the Limited Agency Agreement. Cincinnati, however, argues that none of the parties involved in the loan closing for the Sleep Inn Motel ever contacted the North Carolina Department of Insurance to determine if Massey or his agency were affiliated with Cincinnati.
A few months later, on January 15, 1997, Cincinnati's Bond Department received a memo from Massey, on behalf of Massey & Associates, wherein Massey represented to Cincinnati that he had destroyed all powers of attorney in accordance with Mr. McCurdy's letter of October 7, 1996. Nevertheless, sometime after the termination of the initial Agency Agreement with Massey, Cincinnati instructed a field representative to go to the Massey Agency to physically retrieve the "bond kit" supplies. The field representative reported back to Cincinnati headquarters that he could not pick up the materials because he believed that Massey's wife kept a gun in her purse and that she harbored resentment against Cincinnati; the representative therefore feared for his personal safety if he were to go to the Massey Agency. Thus, there remained some concern at Cincinnati that Massey still had bond materials, but Cincinnati took no additional action to retrieve the bond materials.
In January 1999, Dynamic Development Group, LLC entered into a construction contract with Centech Building Corporation ("Centech") in the amount of $2,600,000 for the construction of a Sleep Inn Motel at Interstate 77 and Highway 150 in Iredell County, North Carolina (hereinafter the "Sleep Inn Project"). DDG obtained financing for this construction through Defendant BB & T. In the past, Centech, the general contractor for the Sleep Inn Project, had obtained most of its insurance and bond needs from the Massey Agency. During the duration of the business relationship between the Massey Agency and Centech, the Massey Agency obtained performance and payment bonds through Travelers Insurance Company, Amwest Surety, and other commercial sureties, but never through Cincinnati. At the time of the Sleep Inn Project, Centech was having financial problems and, consequently, its primary surety at the time, Travelers, refused to bond Centech for the Project. The Massey Agency was particularly motivated to obtain the bonds Centech needed for the Sleep Inn Project because Centech needed the money to pay the Massey Agency $30,000 in premiums it owed for such things as workers' compensation and general liability coverage. To prevent Centech from losing the Sleep Inn Project contract while Massey attempted to obtain legitimate bonds from Amwest Surety, Massey decided to "manufacture" a fraudulent payment bond, a fraudulent labor and performance bond, and a fraudulent Dual Obligee Rider to make it appear that Centech had met the requirements of the contract.
According to Massey, when he manufactured the fake bonds he copied a previously executed Cincinnati performance bond and a previously executed labor and material payment bond. Massey modified the bond by whiting-out the blanks on an old bond, and then inserted the necessary information on a photocopied form. As for the Dual Obligee Rider, Massey indicated that he did not have a standard dual-obligee-rider form because those forms had not been included in his original "bond kit" from Cincinnati; therefore, he used a Cincinnati indemnity-type performance bond provided to him, and manually typed "Dual Obligee Rider" at the top left of the bond form. Massey's "manufactured" bonds lacked an original agent's signature, did not have the proper embossed seal or wafer seal, and did not have a power of attorney attached.
Not long after the Sleep Inn Project started, Centech was unable to keep up with the project schedule, and subcontractors and vendors began calling requesting information regarding the bonds in order to file payment bond claims. Cincinnati alleged that it was only when it began to receive claims from some of the subcontractors and/or vendors for the Sleep Inn Project that it began to discover that something was wrong. Subsequently, Cincinnati searched its files but could not find any record of issuing bonds for the Sleep Inn Project, or for Centech. Further investigation revealed that Massey had issued fraudulent Cincinnati...
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