Cornerstone Pavers, LLC v. Zenith Tech Inc. (In re Cornerstone Pavers, LLC)

Decision Date21 July 2022
Docket NumberCase No. 20-20882-gmh,Adv. Proc. No. 21-02044-gmh
Citation642 B.R. 459
Parties IN RE: CORNERSTONE PAVERS, LLC, Debtor. Cornerstone Pavers, LLC, Plaintiff, v. Zenith Tech Inc., Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Wisconsin

Averi Anne Niemuth, Evan Schmit, Kerkman & Dunn, Milwaukee, WI, for Plaintiff.

Timothy J. Andringa, Cramer, Multhauf & Hammes, LP, Waukesha, WI, for Defendant.

DECISION AND ORDER ON WEST BEND MUTUAL INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT ON CLAIM OF ZENITH TECH INC.

G. Michael Halfenger, Chief United States Bankruptcy Judge

The central dispute in this adversary proceeding is between Zenith Tech Inc., which was hired by the Wisconsin Department of Transportation (DOT) to complete a highway-construction project, and Cornerstone Pavers, LLC, the debtor in the underlying bankruptcy case, which was subcontracted by Zenith to perform some of the required work. During the project, Zenith terminated Cornerstone and replaced it with another subcontractor. Each now seeks to recover from the other its resulting damages for breach of the subcontract and the duty of good faith and fair dealing.

But first, the undercard: Zenith also seeks to recover from West Bend Mutual Insurance Company on a bond that Zenith alleges West Bend issued to insure the performance of the subcontract—whether by Cornerstone or, as Zenith maintains became necessary here, by someone else. West Bend denies any liability to Zenith on the bond and moves for summary judgment on Zenith's claim against it, asserting that the bond it issued does not insure the performance of the subcontract that Zenith and Cornerstone executed and, if it does, that Zenith failed to satisfy one or more conditions that the bond says must be satisfied before West Bend's obligations under its terms arise. Zenith disagrees.

I

The applicable standard on a motion for summary judgment is a familiar one: "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Fed. R. Bankr. P. 7056. For purposes of this standard, a fact is material if a dispute about it "might affect the outcome of the suit under the governing law". Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). And a factual dispute is genuine "if the evidence is such that" it "may reasonably be resolved in favor of either party." Id. A genuine dispute as to a material fact "properly can be resolved only by a finder of fact", so if there are any such disputes, then "there is the need for a trial", and summary judgment must be denied. Id. Accordingly, when a party seeks summary judgment, the court must determine whether "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id.

For the most part West Bend and Zenith do not dispute what happened here: Zenith entered into a highway-construction contract with the DOT and sought to hire Cornerstone as a subcontractor to do some of the required work. While Zenith and Cornerstone were negotiating the terms of their subcontract, but before they executed it, West Bend issued a bond insuring the performance of an agreement between them. That agreement is identified on the bond's cover page by project, price, and date, but the listed date is December 12, 2018, the date of an unexecuted draft of Zenith and Cornerstone's subcontract. The final, signed agreement is dated February 14, 2019. Zenith fired Cornerstone that June, hired a replacement subcontractor in July, and only then informed West Bend of its termination of the subcontract with Cornerstone. Zenith made a demand on the bond, but West Bend denied all liability, citing Zenith's failure to provide West Bend with advance notice that Zenith was considering declaring Cornerstone's default of the subcontract, among other things.

II

Although West Bend and Zenith broadly agree about what happened, and they agree that Wisconsin law governs their dispute, they strongly disagree about how the bond should be read under the governing law, including what their respective rights, responsibilities, and remedies are under its terms.

Under Wisconsin law, "the contracts of paid sureties "—as is the contract here, see ECF No. 71-10"are to be treated as insurance contracts". Wiegel v. Sentry Indem. Co. , 94 Wis.2d 172, 287 N.W.2d 796, 799–800 (1980). Ordinarily, "[i]nterpretation of an insurance contract presents a question of law."

SECURA Ins. v. Lyme St. Croix Forest Co., LLC , 384 Wis.2d 282, 918 N.W.2d 885, 889 (2018) (citing Am. Fam. Mut. Ins. Co. v. Am. Girl, Inc. , 268 Wis.2d 16, 673 N.W.2d 65, 73 (2004) ). That is, "where a dispute turns upon application of an insurance policy to underlying facts, interpretation of the insurance policy presents a question of law for the court." Fontana Builders, Inc. v. Assurance Co. of Am. , 369 Wis.2d 495, 882 N.W.2d 398, 411 (2016). Policy language, given its "common and ordinary meaning", if "plain and unambiguous", is "enforce[d] ... as written, without resort to rules of construction or principles in case law." Danbeck v. Am. Fam. Mut. Ins. Co. , 245 Wis.2d 186, 629 N.W.2d 150, 154 (2001) (citing Henderson v. State Farm Mut. Auto. Ins. Co. , 59 Wis.2d 451, 208 N.W.2d 423, 426 (1973) ; Hull v. State Farm Mut. Auto. Ins. Co. , 222 Wis.2d 627, 586 N.W.2d 863, 867 (1998) ). Policy language that is ambiguous, meaning it is "susceptible to more than one reasonable construction", is typically construed, as a matter of law, "against the drafter, and in favor of the reasonable expectations of the insured." Fontana Builders, 882 N.W.2d at 412, 369 Wis.2d 495 (quoting Wadzinski v. Auto-Owners Ins. Co. , 342 Wis.2d 311, 818 N.W.2d 819, 824 (2012) ). All of which is to say, the need to interpret an insurance contract does not, in most cases, require a trial, as it typically raises only legal issues.

In limited circumstances, however, interpretation of an insurance contract raises issues of fact that must be presented to and resolved by a factfinder at a trial. Under Wisconsin law, "interpretation of a contract—insurance or otherwise—creates a question of fact for the jury only when extrinsic evidence illuminates the parties’ understandings at the time they entered into the agreement." Id. , 369 Wis.2d 495, 882 N.W.2d at 411 (emphasis added) (citing Thurston v. Burnett & Beaver Dam Farmers' Mut. Fire Ins. Co. , 98 Wis. 476, 74 N.W. 131, 132 (1898) ). "[A] court's primary purpose in interpreting a contract for insurance is to give effect to the intentions of the parties", which are usually "presumed to be expressed in the language of the policy." Wadzinski , 818 N.W.2d at 824, 342 Wis.2d 311 (citing Folkman v. Quamme , 264 Wis.2d 617, 665 N.W.2d 857, 864 (2003) ). But, in some cases, extrinsic evidence, such as the "parties’ testimony and drafts of the contract", is properly presented to and used by "the jury to resolve factual disputes about contract formation", including questions of fact about "the parties’ respective understandings at the time they entered into a contract". Fontana Builders, 882 N.W.2d at 409–11, 369 Wis.2d 495 (citing Pleasure Time, Inc. v. Kuss , 78 Wis.2d 373, 254 N.W.2d 463 (1977) ; Cent. Auto Co. v. Reichert , 87 Wis.2d 9, 273 N.W.2d 360 (App. 1978) ).

III
A

West Bend's and Zenith's conflicting readings of the bond show that its provisions are ambiguous as written and as applied to the underlying facts. West Bend argues that the bond would have insured performance of the December 12, 2018 draft subcontract between Cornerstone and Zenith if they had executed that subcontract. After all, West Bend says, the bond's cover page clearly refers to a "construction contract" dated "12/12/2018". ECF No. 71-11, at 1. But Cornerstone and Zenith did not execute that draft subcontract—they executed a revised subcontract dated February 14, 2019—and West Bend did not issue another bond. Accordingly, West Bend asserts, it cannot be liable for any failure to perform under the executed subcontract.

West Bend's argument has some initial textual appeal, but the contrary argument is not easily dismissed. The bond states that it insures "the performance of the Construction Contract". Id. at 2. It defines the term "Construction Contract" as "[t]he agreement between the Owner and Contractor identified on the cover page, including all Contract Documents and changes made to the agreement and the Contract Documents." Id. at 3. The bond's cover page respectively identifies the "Owner" and "Contractor" as "Zenith Tech, Inc." and "Cornerstone Pavers, LLC". Id. at 1. And the bond defines the term "Contract Documents" as "[a]ll the documents that compromise the agreement between the Owner and Contractor." Id. at 3. The use of the definite article in "the agreement" suggests that there is only one relevant agreement between the "Owner" and the "Contractor". And, in fact, there is only one such agreement between Zenith and Cornerstone, identified by the date of a draft of that agreement (December 12, 2018) that was then changed and executed with a different date (February 14, 2019) but with the same price, for the same project.

Accordingly, under one reasonable construction of the bond, it insures only performance of a contract with the date listed on its cover page (December 12, 2018), but under another reasonable construction of the bond, that contract date is merely one of several identifiers of "the agreement" that Zenith and Cornerstone executed, in the form of a subcontract dated February 14, 2019, which was arguably nothing more than the December 12, 2018 draft agreement "and changes made to" that draft agreement.

B

West Bend argues that a boilerplate provision in the executed subcontract obviates this latter reading. The February 14, 2019 subcontract states, in relevant part,

This Agreement and the documents designated herein constitute the
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