Hanover Ins. Co. v. N. Bldg. Co.

• Decision Date: 08 May 2014
• Docket Number: No. 13–2675.,13–2675.
• Citation: 751 F.3d 788
• Parties: HANOVER INSURANCE COMPANY, Plaintiff–Appellee, v. NORTHERN BUILDING COMPANY and Thomas VanDuinen, Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

751 F.3d 788

HANOVER INSURANCE COMPANY, Plaintiff–Appellee,

v.NORTHERN BUILDING COMPANY and Thomas VanDuinen, Defendants–Appellants.

No. 13–2675.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 13, 2013.

Decided May 8, 2014.

Eric B. Kjellander, Attorney, Watt Tieder Hoffar & Fitzgerald, LLP, Chicago, IL, for Plaintiff–Appellee.

Michael R. Behan, Attorney, Schram, Behan & Behan, Okemos, MI, for Defendants–Appellants.

Before EASTERBROOK, KANNE, and ROVNER, Circuit Judges.

KANNE, Circuit Judge.

This is a breach of contract action brought before us pursuant to our diversity jurisdiction. In 2008, Northern Building Company (“Northern”), operated by Thomas VanDuinen out of his home in Alpena, Michigan, won a contract to do various work at Midway International Airport in Chicago under the supervision of a project manager. Hanover Insurance Company (“Hanover”) served as Northern's bonding agent for the project, issuing surety bonds on Northern's behalf. In exchange, Hanover required Northern to enter into an Indemnity Agreement (“the Agreement”) outlining Northern's obligations with respect to any claims asserted against those bonds.

After a dispute arose between the project manager, Northern, and two of Northern's subcontractors, claims were asserted against the bonds issued by Hanover. Hanover resolved those claims in a manner explicitly permitted by the Agreement, a salient fact which Northern's attorney conceded at oral argument. Hanover sought indemnity from Northern, which was also explicitly permitted by the Agreement, but Northern refused to cooperate. Hanover brought a breach of contract action in the Northern District of Illinois, hoping to compel Northern to do what it was clearly obligated to do. The parties filed cross-motions for summary judgment, and Hanover's was granted. Northern appeals. The Agreement is unambiguous. Northern breached it, and Hanover is entitled to contractual damages. We affirm.

I. Background

At all relevant times, Northern, operated by Thomas VanDuinen, was in the business of performing general contracting services related to public construction projects. State and federal law required Northern ¹ to obtain surety bonds for such projects to secure both Northern's performance of the work and its payment of any amounts owed to subcontractors and suppliers. Hanover was Northern's bonding agent. In consideration for its issuance of the surety bonds, Hanover required Northern to enter into an Indemnity Agreement, which VanDuinen signed in his individual capacity and in his capacity as President of Northern.

The Midway International Airport Project (“the Project”) was financed by the Federal Aviation Association (“FAA”) and managed by Parsons Infrastructure & Technology Group, Incorporated (“Parsons”). In 2008, Northern won the bid for the Project, and began contracting with various subcontractors to perform the work required. Not long thereafter, things went awry. Beginning in 2009, certain subcontractors hired to upgrade the fire alarm systems at Midway—McDaniel Fire Systems (“McDaniel”) and Rex Electric—began to complain that Northern had failed to pay them in accordance with the surety bonds and contract documents for the Project. The dispute between Northern and its subcontractors meant that the work was halted, which led to a separate complaint, from Parsons, that Northern was failing to complete the Project as required. The FAA opted to retain possession of the remaining contract funds, totaling $127,086.00, pending resolution of the various disputes and completion of the work required.

Ultimately, Hanover received two types of claims against the surety bonds: (1) claims for payment from subcontractors McDaniel (for $127,452.78) and Rex Electric (for $78,495.00) ² and (2) a claim for performance from the project manager, Parsons. Hanover demanded collateral from Northern, as was its right under the Agreement. Northern refused to post collateral or to indemnify Hanover in any respect. Hanover hired counsel to assist with investigating the claims against the bonds and with enforcing the Agreement against Northern.

On September 9, 2009, McDaniel filed for bankruptcy relief in the Northern District of Indiana. On March 2, 2010, the bankruptcy trustee brought suit against Hanover seeking the amount McDaniel claimed it was owed for work already performed. On September 22, 2012, Hanover paid the bankruptcy trustee $127,452.78 to resolve both McDaniels's and Rex Electric's payment claims against the bond.

Around the same time, Hanover agreed to resolve Parson's bond claim for performance by stepping into Northern's previous role as general contractor and arranging for completion of the Project. In exchange, in July 2011, Parsons paid Hanover the $127,086.00 of contract funds the FAA had withheld from Northern due to the failure of Northern and its subcontractors to complete the Project.

In March 2011, Hanover filed this lawsuit against Northern and VanDuinen to force compliance with the Agreement. Specifically, Hanover sought to settle its right to the $127,086.00 of contract funds initially withheld by the FAA—Northern still believed it had a right to payment of those funds—and to recoup attorney fees and costs incurred in resolving the performance and payment claims against the bonds.³ The district court granted summary judgment in Hanover's favor. Northern and VanDuinen appeal.

II. Analysis

We begin by briefly discussing Northern's challenge to the district court's subject matter jurisdiction. Northern believes that the money Hanover was eventually paid for completing the Project by Parsons and the FAA—totaling $127,086.00—was never genuinely “in controversy” and therefore cannot be counted towards the $75,000.00 threshold for diversity jurisdiction. See28 U.S.C. § 1332(a). That argument is nonsense. It does not matter whether Hanover knew at the time of filing that it would be able to gain possession of those funds through settlement. What matters is that Hanover still had to settle the legal question of its right to possess, or its ownership of, those funds. Under the original contract for the Project, the funds were slated to go to Northern, and Northern still appears to believe it should have been paid. Both parties claimed the money; Hanover sued to establish that the money rightfully belonged to it. That amount was therefore “in controversy,” regardless of whether it would actually change hands before final judgment was entered.⁴

Substantively, Northern's appeal asks us to review the district court's grant of summary judgment, a task which we undertake de novo. Swetlik v. Crawford, 738 F.3d 818, 826 (7th Cir.2013). Summary judgment is proper where the admissible evidence shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Lawson v. CSX Transp., Inc., 245 F.3d 916, 922 (7th Cir.2001). A “material fact” is one identified by the substantive law as affecting the outcome of the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A “genuine issue” exists with respect to any such material fact, and summary judgment is therefore inappropriate, when “the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Id. On the other hand, where the factual record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In determining whether a genuine issue of material fact exists, we view the record in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. Contract cases such as this one are often prime candidates for summary judgment because contract interpretation is a question of law. SAMS Hotel Grp., LLC v. Environs, Inc., 716 F.3d 432, 434 (7th Cir.2013).

Northern has tried to make this into a multi-issue, complex proceeding. But it is actually very simple. Only a few basic observations need to be made. First, the Agreement in this case is clear and unambiguous in all relevant aspects. Northern clearly breached it; Hanover did not. Second, Northern's arguments against the enforceability of the Agreement are unsupportedand unpersuasive. Third, Northern's argument against the fee award is meritless and reflects a lack of understanding of the summary judgment mechanism. We will work through each of these points in turn, ultimately affirming the judgment of the district court.

A. Hanover's Conduct was Entirely Consistent with the Agreement.

Since this case involves a breach of contract claim, we must begin by determining what the Agreement itself requires of Hanover and Northern. In diversity cases, we apply federal procedural and state substantive law. Allen v. Cedar Real Estate Grp., LLP, 236 F.3d 374, 380 (7th Cir.2001). Rules of contract interpretation are substantive, so the Agreement must be interpreted according to state law—in this case, the laws of the State of Illinois. Id. In Illinois, the main objective in contract interpretation is to give effect to the intent of the parties. C.A.M. Affiliates, Inc. v. First Am. Title Ins. Co., 306 Ill.App.3d 1015, 240 Ill.Dec. 91, 715 N.E.2d 778, 782 (1999). “If a contract is clear and unambiguous, the court must determine the intent of the parties solely from the plain language of the contract.” Id. A review of the plain language of the contract in this case shows not only that the contract language is clear and unambiguous, but that Hanover complied with it and Northern did not.

We begin by observing that it is undisputed that Hanover received claims against the surety bonds it issued on Northern's behalf. McDaniel and Rex Electric made claims for payment, and Parsons made a claim for performance. Once Hanover received the...