Clark Cnty. Sch. Dist. v. Travelers Cas. & Sur. Co. of Am., Case No. 2:13-cv-01100-JCM-PAL
| Decision Date | 18 August 2016 |
| Docket Number | Case No. 2:13-cv-01100-JCM-PAL |
| Parties | CLARK COUNTY SCHOOL DISTRICT, Plaintiff, v. TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Defendant. |
| Court | U.S. District Court — District of Nevada |
(Mot for Determination - ECF No. 133)
Before the court is Defendant Travelers Casualty and Surety Company of America Motion for Determination of Good Faith Settlement (ECF No. 133) which was referred to the undersigned for a decision pursuant to 28 U.S.C. § 636(b)(1)(B) and LR IB1-4. The court has reviewed the motion and attached supporting Affidavit (ECF No. 134), Plaintiff's Response (ECF No. 135), Defendant's Reply (ECF No. 136), and Exhibit to the Motion (ECF No. 140).
The Complaint (ECF No. 1) in this case was filed June 21, 2013. Clark County School District ("CCSD") filed an Amended Complaint (ECF No. 9) August 19, 2013, asserting claims for: (1) mandatory injunction to compel specific performance; (2) breach of contract; (3) contractual breach of the covenant of good faith and fair dealing; (4) tortious breach of the covenant of good faith and fair dealing; and (5) declaratory relief. The complaint arises out of written contracts CCSD entered into in May 2010, with general contractor Big Town Mechanical, LLC ("BTM") to modernize heating ventilation and air conditioning ("HVAC") systems in 15 schools within the district. Travelers Casualty and Surety Company of America ("Travelers") issued 15 separate performance bonds and payments bonds naming BTM as the principal and CCSD as the owner/obligee on the bonds.
BTM began work on the 15 school projects as specified in the contracts. In late-2012 to early-2013, BTM submitted a series of claims to CCSD seeking payments for additional costs that BTM claimed to have incurred in connection with the 15 projects as a result of claimed unpaid contract balances, change order amounts, and extra work BTM was directed to perform. BTM also made delay and disruption claims against CCSD. The aggregate amount of BTM claims totaled $6.5 million.
CCSD rejected all of BTM's claims and on May 14, 2013, BTM filed for bankruptcy protection. In December 2013, CCSD and Travelers entered into a Takeover Agreement for Travelers to complete BTM's projects as surety. Travelers entered into a contract with Sletten Construction of Nevada ("Sletten") to complete the projects, and paid Sletten approximately $5 million.
On July 3, 2013, the undersigned granted Travelers leave to file a counterclaim for breach of contract and contractual breach of the implied covenant of good faith and fair dealing. The parties subsequently submitted a stipulation which the court approved to continue the discovery plan and scheduling order deadlines to allow for project completion on November 14, 2014 (ECF No. 48). The court also approved a stipulation granting the parties' request to extend the discovery deadline to September 7, 2015 (ECF No. 56).
Travelers applied for and received permission from the U.S. Bankruptcy Court in this district to prosecute all of BTM's claims against CCSD related to the contracts and the project on May 19, 2014.
In an order (ECF No. 59) entered January 12 2015, the district judge granted CCSD's motion for partial summary judgment on the pleadings with respect to Travelers fourth claim for relief, tortious breach of the covenant of good faith and fair dealing. The order denied CCSD's motion for partial summary judgment without prejudice and Travelers motion for a Rule 56(d) continuance as moot finding he could not conclude that CCSD was entitled to liquidated damages for all delays as a matter of law and that Travelers should be afforded an opportunity to complete discovery regarding the causes of delays at issue.
On October 19, 2015, after the close of discovery, CCSD filed a Motion in Limine to preclude Travelers from introducing evidence regarding certain counterclaims and defenses (ECF No. 114), a Motion for Partial Summary Judgment seeking a determination that BTM, and therefore Travelers, did not provide the required contractual notice of BTM's claims (ECF. No. 112), and a Motion for Partial Summary Judgment seeking a determination that Travelers' wrongful termination counterclaim is barred (ECF No. 113). These motions are now fully briefed and under submission to the district judge.
In this case Travelers, standing in BTM's shoes, claims CCSD owes it approximately $6.5 million. CCSD's pending motion for partial summary judgment seeks to strike the BTM claims and counterclaim on the grounds that Travelers may not recover as surety for BTM because BTM did not comply with the notice provisions of the contracts, and as a result, the claims are barred. Travelers' counterclaim also asserts a wrongful termination claim asserting CCSD failed to comply with specific conditions precedent in the contract in order to properly terminate BTM. Travelers argues that as a matter of law CCSD was required to terminate the contracts in order to assert a valid claim against Travelers' payment and performance bonds, and that because it did not do so, it does not have a valid claim against the bonds. Travelers seeks reimbursement from CCSD for the $5 million it paid Sletten.
On December 1, 2015, CCSD and Travelers mediated their disputes with the assistance of Floyd Hale, Esq. of JAMS. The motion states the basic terms of the settlement are that Travelers will pay CCSD $5 million. CCSD will keep possession of the approximately $600,000 in contract balance on the contracts. CCSD will grant Travelers an assignment of "certain rights", and the parties give each other a full and final release of all claims on the projects. At the time this motion was filed, the settlement agreement was being memorialized in a written document.
In the current motion, Travelers seeks a determination that the settlement reached with CCSD was made in good faith for purposes of NRS 17.245 which bars all claims against a settling Defendant for contribution and equitable indemnity. Citing The Doctor's Company, 120 Nev. 644, 657, 98 P.3d 681, 690 (2004), Travelers acknowledges that as the moving party, it hasthe burden of proving that the settlement was, in fact, reached in good faith,. There, the Nevada Supreme Court held that "[a] settling defendant seeking protection from contribution and implied indemnity claims has the burden of proving that the settlement was in good faith." Id.
Travelers argues that applying the 5-factor test articulated by the Nevada Supreme Court in Velsicol Chemical v. Davidson, 107 Nev. 356, 811 P.2d 561 (1991), compels a determination that settlement was reached in good faith. Specifically, the settlement amount is $5 million in exchange for a complete release and dismissal with prejudice of all claims that CCSD has with respect to the projects and the bonds Travelers issued. In agreeing to this settlement, Travelers considered that the legal expenses were increasing, would likely increase and were expected to be substantial. Additionally, Travelers assessed its risk on the motions filed by CCSD at the close of discovery. At the time this motion was filed, expert reports and rebuttal reports were due. Travelers determined that it had substantial litigation risks, and that the pending motions could be decided against it. In assessing its litigation risks Travelers also acknowledged that it is difficult to prevail on its counterclaims based upon the BTM claims and wrongful termination of BTM.
Settlement proceeds go directly to CCSD as the sole Plaintiff in this matter. Therefore, no allocation analysis is needed. The total penal amount of Travelers' bonds varies from project to project from a low of $2,178,000, to a high of $3,288,000. Thus, CCSD's claims do not exceed the penal amount of Travelers' bonds. A summary of CCSD's damages claim by project is attached to the supporting affidavit of John Fouhy (ECF No. 134). CCSD seeks to recover $11,463,209.85 from Travelers in this action. Of that, $245,540.85 is a claim for direct costs and the balance of $11,217,750 are contractual liquidated damages claims. In addition, CCSD seeks interest, and attorney's fees and costs. A spreadsheet of the damages per project is attached as Exhibit A to the Fouhy declaration.
Turning to the fourth factor, both Travelers and CCSD are financially sound entities and could therefore bear the financial burden of continued litigation. Finally, Travelers argues that this case has been hotly litigated for more than two years. The parties have exchanged written discovery, produced in excess of 200,000 documents, and taken numerous depositions. At thetime settlement was reached, more depositions were scheduled. The settlement was reached through a formal settlement conference with a neutral, Floyd Hale, after extensive negotiations. Finally, Travelers argues the settlement was not reached through collusion, fraud, or tortious conduct. For these reasons, Travelers asks the court for a determination that the proposed settlement was made in good faith for purposes of NRS 17.245.
CCSD filed a Response (ECF No. 135) asserting it had no objection to the relief sought in Travelers' motion. It agreed that on December 4, 2015, CCSD and Travelers reached a settlement in which Travelers agreed to pay it $5 million as compensation for numerous delays caused by BTM's failure to timely complete the HVAC renovations at 15 Las Vegas elementary schools. In addition, Travelers agreed that CCSD would keep possession of approximately $600,000 in remaining contract balances for the projects. Thus, the settlement is effectively $5.6 million from Travelers to CCSD. Travelers has agreed to a full and final release of all of the counterclaims it has or may have against CCSD related to the projects, and CCSD has granted Travelers a full an final release of all of the claims CCSD has or may have against Travelers related to the projects. CCSD also granted Travelers an assignment of certain rights. CCSD's response indicated that a...
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