Cincinnati Ins. Co. v. B & B Paving, Inc., Case No. 1-16-cv-340
| Decision Date | 22 January 2018 |
| Docket Number | Case No. 1-16-cv-340 |
| Court | U.S. District Court — District of North Dakota |
| Parties | The Cincinnati Insurance Company, an Ohio Corporation, Plaintiff, v. B & B Paving, Inc. d/b/a B & B Dirtworks, Michael Baumgartner, Nancy Baumgartner, Defendants. |
The Cincinnati Insurance Company ("Cincinnati") previously moved for summary judgment against B & B Paving, Inc., Michael Baumgartner, and Nancy Baumgartner (collectively "the Defendants"). (Doc. No. 31). In a previous order, the court granted that motion as to Cincinnati's breach of contract claim but denied the motion as to the amounts of damages Cincinnati sought to collect. Cincinnati Ins. Co. v. B & B Paving, Inc., Case No. 1-16-cv-340, 2017 WL 42468565 at *6 (D.N.D. September 25, 2017). The court directed Cincinnati to provide supplemental briefing as to the amount of damages collectable under North Dakota law. That briefing, along with that from the Defendants, is now before the court. (Doc. Nos. 38, 39, 41).
Generally speaking, Cincinnati and the Defendants executed two surety bonds for various construction services to be provided by the Defendants. As is relevant to this case, those bonds are identical. Cincinnati and the Defendants also executed corresponding indemnity agreements, under which the Defendants agreed to indemnify Cincinnati "and hold it harmless from and against any and all liability, losses, costs, damages, attorneys' fees, disbursements and expenses of whatever kind or nature which the Surety may sustain or incur by reason or in consequence of having executed or procured the execution of the" Surety Bonds. (Doc. Nos. 1-1, 1-2). The Defendants executed these indemnity agreements jointly and severally. Cincinnati ultimately received and paid out claims under the bonds totaling $82,064.95. (Doc. No. 33-1). Cincinnati also incurred $13,985.70 in costs, expenses, and attorneys fees in discharging its obligations under the surety bonds and in prosecuting this breach of contract case under the indemnity agreements. In sum, Cincinnati sought judgment for $96.050.65, which was inclusive of the paid bond claims, attorneys' fees, and costs and expenses.
In the court's previous order, the court granted Cincinnati's motion for summary judgment insofar as the Defendants breached the indemnity agreements for not indemnifying Cincinnati. The court further concluded Cincinnati was entitled to a judgment in the amount of $82,064.95, which represented the amounts paid out under the bonds. The court, however, denied, without prejudice, Cincinnati's motion as to the remaining $13,985.70 because Cincinnati had not properly itemized the expenses comprising that total and the court was unsure about whether North Dakota law allowed for the collection of that amount. The court directed Cincinnati to provide supplemental briefing and affidavits as to the itemization issue and the court's collectability concerns.
The court has reviewed the supplemental itemized statement of loss submitted by Cincinnati. (Doc. No. 38-2). The statement consists of three categories of losses: (1) amounts paid out under the surety bonds; (2) investigation expenses; and (3) attorneys' fees.1 In aggregate, Cincinnati seeks$97,582.15, which is more than it sought in its previous motion for summary judgment and which presumably reflects further attorneys' fees incurred in this matter. As discussed above, the court has already concluded Cincinnati is entitled to $82,064.95, which represents the amounts paid out under the surety bonds, so the court will not address Cincinnati's first category of loss any further. Thus, the court is left to consider the collectability of the balance of Cincinnati's requested amount.
Cincinnati's second category of expenses, in its entirety, consists of a $27.00 charge characterized as an investigation expense. The Defendants have not made any serious effort to argue this charge does not fall within the category of losses collectable under the indemnity agreements, and such amounts likely do no fall under the invalidation dictated by N.D.C.C. § 28-26-04. See First Nat. Bank of Decorah v. Laughlin, 61 N.W. 473, 475 (N.D. 1894) (). Thus, the court concludes Cincinnati is entitled to additional damages in the amount $27.00.
Cincinnati's third category of expenses includes $15,490.20 worth of attorneys' fees. The court previous denied Cincinnati's request for attorneys' fees based upon the potential application of N.D.C.C. § 28-26-04. That section provides:
Any provision contained in any note, bond, mortgage, security agreement, or other evidence of debt for the payment of an attorney's fee in case of default in payment or in proceedings had to collect such note, bond, or evidence of debt, or to foreclosesuch mortgage or security agreement, is against public policy and void.
The court had concern about the collectability of Cincinnati's requested fees when reading N.D.C.C. § 28-26-04 with Hartford Acc. & Indem. Co. v. Anderson, 155 N.W.2d 728, 735-36 (N.D. 1968). In Hartford, a surety issued a construction bond to principals who also executed an indemnity agreement containing an attorneys' fees provision. After concluding the principals/indemnitors breached the indemnity agreement by not providing proper indemnification, the trial court taxed the indemnitors with attorneys' fees pursuant to the indemnity agreement. In considering that aspect of the case, the North Dakota Supreme Court stated:
Our study of this case has disclosed that the judgment includes attorney fees, and this is perhaps because the indemnity agreement so provides. It is our view, however, that the legislature intended, under N.D.C.C. Sec. 28-26-04, to prohibit a provision for the payment of attorney fees in an instrument such as that involved in this case.
Hartford, 155 N.W.2d at 736. With that conclusion, the court remanded the case "with instructions to modify the judgments to eliminate therefrom the amounts included for attorney fees." Id.
In light of Hartford and N.D.C.C. § 28-26-04, the court left Cincinnati with the task of showing the collectability of its requested amounts under North Dakota law. Cincinnati's supplemental briefing goes through considerable pain to differentiate bonds and indemnification agreements, with that differentiation allegedly rendering N.D.C.C. § 28-26-04 inapplicable under the circumstances. Despite its compelling argument, Cincinnati concedes Hartford "applied N.D.C.C. § 28-26-04 to invalidate attorneys' fees under an indemnity agreement for a surety's losses in connection with construction bonds." (Doc. No. 38 p. 9). Notwithstanding this concession, Cincinnati asserts "Hartford did not provide any explanation or reasoning for its finding that the indemnity agreement fell within the ambit of the N.D.C.C. § 28-26-04." (Doc. No. 38 p. 9).Cincinnati also criticizes the Defendants for not providing "a single substantive reason or discussion as to why this Court must apply the flawed ruling in the 1968 [Hartford] case to the instant action." (Doc. No. 41 p. 1). The court will provide that elementary reason.
Cincinnati brought this action in federal court under the diversity jurisdiction afforded to this court by 28 U.S.C. § 1332(a). In so sitting, this court must interpret state law and is "bound by rulings on that issue from the state's highest court." Simmons Foods, Inc. v. Indus. Risk Insurers, 863 F.3d 792, 798 (8th Cir. 2017). This binding is irrespective of whether the court thinks such precedent is "wise or in accordance with the supposed national trend." Id.; see also Universal Underwriters Ins. Co. v. Wagner, 367 F.2d 866, 874 (8th Cir. 1966) (). Whatever exception Cincinnati takes with the alleged lack of reasoning underlying Hartford, the North Dakota Supreme Court's holding is undeniable. Good, bad, or indifferent, this court has a duty to apply that holding because this court lacks the authority to secondguess North Dakota law once the North Dakota Supreme Court has spoken.
The closest Cincinnati comes to addressing this fundamental judicial limitation is its argument the North Dakota Supreme Court's holding in T.F. James Co. v. Vakoch, 2001 ND 12, 628 N.W.2d 298 limited the scope of N.D.C.C. § 28-26-04. In T.F. James, the court considered whether a commercial lease, and an attorneys' fees provision contained therein, fell within the meaning of "evidence of debt" as set forth at N.D.C.C. § 28-26-04, thus precluding recovery of attorneys' fees incurred in enforcing the lease. The court engaged in the following relevant discussion:
To continue reading
Request your trial