Lexon Ins. Co. v. Coop. Educ. Servs.
| Decision Date | 25 March 2021 |
| Docket Number | Case No. 1:20-cv-00205-JCH-JFR |
| Parties | LEXON INSURANCE COMPANY, a Texas corporation, Plaintiff, v. COOPERATIVE EDUCATIONAL SERVICES, Defendant. |
| Court | U.S. District Court — District of New Mexico |
On August 10, 2020, Defendant Cooperative Educational Services ("Defendant" or "CES") filed a Motion for Judgment on the Pleadings Pursuant to Rule 12(c) (ECF No. 22). In response, Plaintiff Lexon Insurance Company ("Plaintiff" or "Lexon") conceded "the appropriateness of the relief requested by CES" as to Count II (Negligence). Pl.'s Resp. 1, ECF No. 27. Lexon, however, argues that its breach of contract claim should not be dismissed. Having considered the motion, briefs, pleadings, applicable law, and otherwise being fully advised, the Court will grant Defendant's motion for judgment on the pleadings as to Plaintiff's negligence claim (Count II) and will deny the motion as to Plaintiff's breach of contract claim (Count I).
A motion for judgment on the pleadings provides a mechanism by which the court may dispose of a case or a claim as a matter of law. See Fed. R. Civ. 12(c). The standards governing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) also govern a party's motion for judgment on the pleadings. Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1160 (10th Cir. 2000). When considering a motion for judgment on the pleadings, a court should accept as true and construe in the light most favorable to the non-moving party all well-pleaded facts in the complaint. Aspenwood Investment Co. v. Martinez, 355 F.3d 1256, 1259 (10th Cir. 2004). For a party to survive a motion for judgment on the pleadings, a complaint must contain sufficient facts to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint that offers "labels and conclusions" or "a formulaic recitation of the elements of a cause of action" is insufficient to state a claim for relief. Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A plaintiff must allege either direct or inferential allegations on all the material elements of a claim and provide enough factual allegations for a court to infer the claim is plausible. See Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008).
According to Rule 12(d), if matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment. Fed. R. Civ. P. 12(d). Under Rule 12(d), a court has broad discretion whether to accept material beyond the pleadings or to refuse to accept extra-pleading materials and resolve the motion solely on the pleading itself. See Lowe v. Town of Fairland, Okl., 143 F.3d 1378, 1381 (10th Cir. 1998). No conversion is required, however, when the court considers information that is subject to proper judicial notice or documents incorporated into the complaint by reference and central to the plaintiff's claim, unless their authenticity is questioned. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Pace v. Swerdlow, 519 F.3d 1067, 1072 (10th Cir. 2008) (quoting Utah Gospel Mission v. Salt Lake City Corp., 425 F.3d 1249, 1253-54 (10th Cir. 2005)). Plaintiff attached to its complaint documents to which its complaint referred and that are central to its breach of contract claim, and thus, the Court has considered the contents of those documents without converting the motion to one for summary judgment.
On or about June 16, 2016, Eddy County, New Mexico (the "County") awarded a contract (the "Contract") to Century Club Construction, LLC, ("Century") in connection with the CR 23 Rock Daisy Road - Road Reconstruction, Project No.: 2015.1090, Task Order: CES T-16-05 (the "Project"). Compl. ¶ 4, ECF No. 1-1. The Contract for the Project required Century to obtain surety bonds. Id. Under New Mexico law, when a construction contract is awarded for more than $25,000, certain performance and payment bonds must be delivered to the local public body. See N.M. Stat. Ann. § 13-4-18(A). "If a contractor fails to deliver the required performance and payment bonds, the contractor's bid shall be rejected, its bid security shall be enforced to the extent of actual damages." Id.
Century procured and delivered to the County a Performance Bond dated July 8, 2016 (the "Performance Bond") issued by Lexon Insurance Company ("Lexon") in the penal sum of $4,913,925.00 on behalf of Century, as principal, and the County, as obligee. Compl. ¶ 5, ECF No. 1-1. Century also procured from Lexon a Payment Bond dated July 8, 2016 (the "Payment Bond") in the penal sum of $4,913,925.00 in connection with the Project. Id.
As a condition to issuing the Performance and Payment Bonds (collectively, the "Bonds"), Lexon required that Century use Lexon's funds control company, Fortress National Group, LLC ("Fortress"), as the agent to receive and disburse all monies on the Project. Id. ¶ 6. Consequently, on July 11, 2016, Century entered into a Disbursement Agreement with Fortress in which it, for the benefit of Lexon, assigned to Fortress the right to receive all monies due and payable to Century under the Contract. Id. ¶ 7. By its terms, the Disbursement Agreement was made between Century and Fortress. Disbursement Agreement, ECF No. 1-1 at 36 of 51. According to the Disbursement Agreement, Century was required to issue a written directive to the County to pay all Contract funds into a designated account for the benefit of Lexon. Compl. ¶ 8, ECF No. 1. Century was alsorequired to obtain the written consent of the County, through CES, of the directive that all Contract payments be made directly to Fortress, not Century. Id. ¶ 9. CES, under the laws of the State of New Mexico, is a local public body and a governmental instrumentality of the State of New Mexico. Agreed Order 1, ECF No. 21. CES is an agent for the County. Id. ¶ 11.
Century obtained written consent via a July 11, 2016 "Irrevocable Directive to Send the Contract Proceeds to Fortress National Group for Deposit into Our Account" (hereinafter, the "Irrevocable Directive"). See Irrevocable Directive, ECF No. 1-1 at 51 of 51. The Irrevocable Directive was from Century to CES. Id. According to this document, Century entered into the Contract on the Project "under which the County has agreed, in exchange for [Century's] performance, to pay you the proceeds that we have earned ('Contract Proceeds') and you, in turn, have agreed [to] pay us." Id. It further stated: "Our bonding company has required us to deposit the Contract Proceeds into a checking account maintained exclusively for this Project in order to pay those providing labor, material and services on the Project." Id. It directed checks to be mailed to Fortress. Id. According to the Irrevocable Directive, CES's signature indicated its "agreement to make payment in this manner," which "is a condition of our bonding company's execution of our payment and performance bonds on this Project." Id. CES's Executive Director signed the Irrevocable Directive on July 11, 2016, acknowledging he was the "Authorized Representative" for CES. Id.
CES, as agent for the County, made direct payments to Fortress beginning with the first Project pay application on July 31, 2016. Compl. ¶ 11, ECF No. 1-1. CES made payments on behalf of the County to Fortress for pay applications 1-7 through February 24, 2017. Id. ¶ 12. See also Answer ¶ 11, ECF No. 5 (). However, beginning on or about May 5, 2017,CES made payments totaling $1,574,990.39 for pay applications 8-11 directly to Century. Compl. ¶ 13, ECF No. 1-1. Because of the payment to Century, rather than Fortress, suppliers of labor and material provided on the Project were not paid. Id. ¶ 14.
On or about January 31, 2018, the County gave notice to Century of the County's declaration of Century's default and termination of the Contract. Id. ¶ 15. The County made a demand against the Performance Bond, seeking recovery of certain alleged damages thereunder, on February 14, 2018. Id. Lexon incurred costs by making payments to subcontractors and suppliers to complete the Project in accordance with the Contract and Performance Bond, and after offsetting funds, Lexon suffered a loss of $356,106.17 to complete the Project. See id. ¶¶ 16-17. Lexon filed suit against CES in state court on January 17, 2020, for breach of contract (Count I) and negligence (Count II). The case was removed on March 9, 2020. Notice, ECF No. 1.
Because Lexon concedes dismissal is appropriate for its negligence claim, the Court will grant Defendant's motion for judgment on the pleadings as to Count II and will focus herein on the issues concerning breach of contract.
Section 37-1-23(A) provides governmental entities with immunity for breach of contract actions unless the actions are based on a valid written contract. N.M. Stat. Ann. § 37-1-23(A). Under New Mexico law, a "legally enforceable contract requires evidence supporting the existence of 'an offer, an acceptance, consideration, and mutual assent.'" Piano v. Premier Distrib. Co., 2005-NMCA-018, ¶ 6, 107 P.3d 11 .1 "Consideration consists of a promise to do something that a party is under no legal obligation to do or to forbear from doing something he has a legal right to do." Talbott v. Roswell Hosp. Corp., 2005-NMCA-109, ¶ 16, 118 P.3d 194 (quoting Heye, 2003-NMCA-138, ¶ 12). Both sides must provide consideration. Id. A promise must be binding; in other words, when "a promise puts no constraints on what a party may do in the future—in other words, when a promise, in...
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