Federal Ins. Co. v. Maine Yankee Atomic Power Co., 00-307-P-H.

• Decision Date: 21 November 2001
• Docket Number: No. 00-307-P-H.,00-307-P-H.
• Citation: 183 F.Supp.2d 76
• Parties: FEDERAL INSURANCE COMPANY, Plaintiff v. MAINE YANKEE ATOMIC POWER COMPANY, Defendant
• Court: U.S. District Court — District of Maine

183 F.Supp.2d 76

FEDERAL INSURANCE COMPANY, Plaintiff v. MAINE YANKEE ATOMIC POWER COMPANY, Defendant

No. 00-307-P-H.

United States District Court, D. Maine.

November 21, 2001.

COPYRIGHT MATERIAL OMITTED

Gerald F. Petruccelli, Esq., Petruccelli & Martin, Portland, ME, Michael R. Lastowski, Esq., Duane, Morris & Heckscher, LLP, Wilmington, DE, Stephen A. Stallings, Esq., Henry A.H. Rosenzweig, Esq., Scott D. St. Marie, Esq., Sacks Montgomery, New York City, for Plaintiff.

William J. Kayatta, Jr., Esq., Jared S. Des Rosiers, Esq., Deborah L. Shaw, Esq., Pierce, Atwood, Portland, ME, Theodore J. Tacconelli, Esq., Michael B. Joseph, Esq., Ferry & Joseph, P.A., Wilmington, DE, Joseph D. Fay, Esq., Maine Yankee General Counsel, Wiscasset, ME, for Defendant.

MEMORANDUM DECISION AND ORDER ON STIPULATED RECORD

HORNBY, Chief Judge.

This lawsuit contains a claim for unjust enrichment. Maine Yankee Atomic Power Company ("Maine Yankee") maintains that Federal Insurance Company ("Federal Insurance") was unjustly enriched when Maine Yankee paid approximately $12 million to subcontractors and suppliers that Federal Insurance otherwise would have had to pay as surety under a payment bond. As a result, Maine Yankee seeks restitution from Federal Insurance. Federal Insurance concedes that there may have been some "enrichment"—i.e., that its obligation to pay subcontractors and suppliers may have been reduced in some amount by Maine Yankee's actions. But it denies that any enrichment was unjust. Pointing to contractual documents covering the transactions, Federal Insurance argues that the parties voluntarily structured their relationship and should live with the documented structuring, not turn to principles of unjust enrichment.

Maine Yankee also claims a statutory unfair claims settlement practice based upon Federal Insurance's rejection of Maine Yankee's performance bond claim. This claim raises the question how Maine's unfair claims settlement practices statute applies to suretyship contracts.

I conclude that restitution for unjust enrichment is appropriate, but that Maine's penalty statute for unfair claims settlement practices does not apply to the performance bond claim.

I. PROCEDURAL CONTEXT

As a result of a trial management conference (called when the parties estimated a four to six week jury trial on mind-numbing construction issues involving performance and payment bonds), the parties stipulated to certain facts so as to obtain binding judicial rulings and thereby significantly reduce the number of trial days. They formulated two issues for me to decide without a jury:

(1) Is Maine Yankee entitled under the doctrine of equitable subrogation to assert claims against Federal Insurance under the payment bond—

(2) Is Maine's Unfair Claims Settlement Practices Act, 24-A M.R.S.A. § 2436-A, applicable to the surety relationship that existed between Federal Insurance and Maine Yankee— If so, did Federal Insurance violate subsection (1)(A) of the Act by claiming that the performance bond required notice of any default —

II. STIPULATED FACTS

Maine Yankee decided to decommission its nuclear power plant in Wiscasset, Maine. In 1998, it engaged Stone and Webster Engineering Corporation ("SWEC") to carry out the project, a contract covering five and one-half years, with a price tag of over $250 million. Joint Stipulation of Facts ("Jt.Stip.") Ex. 1 (Appendix C). One of the contractual requirements was that SWEC procure performance and payment bonds, each in the amount of 15% of the contract price. Id. at ¶ 24A.2. SWEC obtained the bonds from Federal Insurance, each in the amount of about $38 million.¹

Problems on the project began to occur as early as 1999, and by the year 2000, Maine Yankee was having serious concerns about SWEC's continued solvency. See, e.g., Jt. Stip. Ex. 220 (attached copy of Maine Yankee's Nov. 18, 1999, letter to SWEC). (SWEC then and Federal Insurance now have disputed the legitimacy of those concerns.) Maine Yankee declared a formal default by SWEC, based in part on insolvency, as of May 4, 2000. Jt. Stip. Ex. 222. For purposes of this ruling, I am asked to assume that Maine Yankee's total damages caused by SWEC's failure or default exceed the $38 million penal amount of the performance bond.² The parties have stipulated that as of May 4, 2000, approximately $12 million worth of labor and materials from SWEC's subcontractors and suppliers had accrued and not yet been paid by SWEC. Jt. Stip. ¶ 17; Jt. Stip. Ex. 26. These amounts were not all overdue, Jt. Stip. Ex. 2 (Exhibit B); Jt. Stip. ¶ 31, however, and there is no claim that Federal Insurance defaulted on its payment bond in not having paid them as of that date.

For a number of reasons, Maine Yankee was anxious that this complex project go forward without delay. To mitigate damages and assuage its concern over SWEC's insolvency, it therefore negotiated an Interim Service Agreement ("ISA") with SWEC, by which SWEC would continue temporarily on the project, on essentially a reimbursable cost basis, but Maine Yankee would pay subcontractors and suppliers directly. See Jt. Stip. Ex. 227 (letter from Maine Yankee representative to Federal Insurance representative citing Maine Yankee's concerns during the post-default negotiation period); Jt. Stip. Ex. 2 at 2. Maine Yankee and SWEC signed the ISA on May 10, 2000.

Maine Yankee sought and obtained Federal Insurance's concurrence in this arrangement. Federal Insurance signed the ISA on May 15, 2000. In the ISA as finally executed by each of Maine Yankee, SWEC, and Federal Insurance, the parties agreed as of May 10, 2000, that Maine Yankee henceforth would pay the subcontractors and suppliers directly and also pay already accrued amounts. Jt. Stip. Ex. 2 at 2-4. Performance bond rights were expressly preserved and other rights generally were preserved:

all Parties wish to preserve and reserve their respective rights and obligations under the Decommissioning Agreement, the Performance Bond and applicable law with respect to all issues, including, without limitation, the Termination Notice. ...

This Interim Service Agreement and the promises and covenants made herein do not supercede, replace, modify, amend or, in any way, affect the Parties' rights and obligations under the Decommissioning Agreement, the Termination Notice, the Performance Bond and the law. The Parties expressly reserve all of their rights under the Decommissioning Agreement, the Termination Notice, the Performance Bond and under applicable law.

Id. at 1, 5. But there was no reference to the payment bond.³ From May 4 to May 10 there had been no discussions between Federal Insurance and Maine Yankee about any claim under the payment bond. Jt. Stip. ¶ 36. Thereafter Maine Yankee did pay the subcontractors and suppliers in the amount of approximately $12 million for pre-May 4 accruals, but without taking any assignment of the subcontractors' and suppliers' rights against Federal Insurance under the payment bond. Jt. Stip. Ex. 26; Jt. Stip. ¶ 32, 33. Eventually, Maine Yankee took an assignment of SWEC's rights under certain subcontracts and became contractually related to those subcontractors directly, but in those assignments there was an express preservation of payment bond rights.⁴

Ultimately, Maine Yankee decided to complete the decommissioning project itself, and pursued its formal claim against Federal Insurance for the full amount of the performance bond. Federal Insurance rejected the performance bond claim. Jt. Stip. Ex. 286. In the course of a two-page, single-spaced letter, Federal Insurance said on page 2:

Your May 1, 2000 letter was the first notice that we had ever received that last year Maine Yankee had declared Stone & Webster in default. Maine Yankee's failure to notify Federal, the surety, when Maine Yankee declared a [default] last year results in Federal's not being afforded the opportunity to take steps at that time that might have resulted in the issues that concerned Maine Yankee being addressed. Nevertheless, it does appear that, after the prior declaration of default, Stone & Webster and Maine Yankee worked out a modification to the contractual payment procedures. While that modification was reached without Federal's knowledge or participation, Maine Yankee thereafter accepted Stone & Webster's continued performance as a cure to the previously declared defaults, and there were no grounds for resurrecting the defaults in early May 2000.

Id. at 2. The parties agree that Maine Yankee did not notify Federal Insurance of any default in 1999. Supplemental Joint Stipulation of Facts ¶ 4. But the performance bond has no notice requirement. See Jt. Stip. Ex. 3. Maine Yankee asserts that the rejection letter implicitly states that there was such a requirement, thereby making an intentional misrepresentation under the Maine statute. Jt. Stip. ¶ 63.

III. UNJUST ENRICHMENT-THE PAYMENT BOND ISSUE

A. Payment Bond Rights

The parties agree that Maine Yankee has no right to recover contractually under the payment bond. There seem to be two reasons for this. First, although Maine Yankee is a named obligee on the payment bond, the caselaw generally disfavors an owner/named obligee bringing suit on a payment bond. See Trustees of Bricklayers and Allied Craftsmen Local No. 3 v. Reynolds Elec. & Eng'g Co., 747 F.Supp. 606, 612 (D.Nev.1990); Ayers Enters., Ltd. v. Exterior Designing, Inc., 829 F.Supp. 1330, 1332-33 (N.D.Ga.1993); Bd. of Educ. v. Hartford Accident & Indem. Co., 152 Ill.App.3d 745, 105 Ill.Dec. 715, 504 N.E.2d 1000, 1005-06 (1987). Instead, the usual plaintiffs on a payment bond are the subcontractors and suppliers themselves who customarily (as in this bond) are identified as beneficiaries of the bond. Second, Maine Yankee concedes that Federal Insurance did not actually default on the bond.⁵ Because of Maine Yankee's concerns for speed and lack of interruption on the project, it paid the subcontractors...