Mhi Shipbuilding, LLC v. National Fire Ins. Co. of Hartford
| Decision Date | 07 October 2002 |
| Docket Number | No. CIV.A. 02-10413-WGY.,CIV.A. 02-10413-WGY. |
| Parties | MHI SHIPBUILDING, LLC and MMBC Debt Holdings I, LLC, Plaintiffs, v. NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Timothy D. Jaroch, Wellesley Hills, MA, for MHI Shipbuilding LLC.
W. Mark Russo, Ferrucci & Russo, PC, Providence, RI, for National Fire Insurance Company of Hartford.
In this diversity action, the Plaintiff, MHI Shipbuilding, LLC ("MHI"), asserts that the Defendant, National Fire Insurance Company of Hartford ("National Fire"), refused to pay money allegedly owed MHI on a surety bond. As a result, MHI defaulted on loans guaranteed by the federal government and thus entered Chapter 11 bankruptcy. MHI asserts a breach of contract claim (Count I) and an unfair or deceptive practices claim pursuant to Massachusetts General Laws Chapter 93A (Count II).
National Fire moves to dismiss the action for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). First, it argues that the statute of limitations on MHI's claims has expired. The resolution of this issue hinges on whether Section 108(a) of the United States Bankruptcy Code, 11 U.S.C. § 108(a), which extends the limitations period for certain suits brought by bankrupt parties, applies to this case. This, in turn, raises the question whether Section 108(a) can be utilized by Chapter 11 debtors in possession (like MHI) as well as trustees.
National Fire also argues that MHI lacks standing and is not the real party in interest to bring this action under Federal Rule of Civil Procedure 17(a) because it completely assigned its rights under the surety bond to the federal government. The key to resolving this issue lies in determining whether MHI's assignment was collateral or total, and whether, if collateral, a collateral assignor can sue under Massachusetts law.
Pursuant to a national policy favoring shipyard revitalization, the Commonwealth of Massachusetts selected Massachusetts Heavy Industries, Inc. ("Heavy Industries"), a corporation wholly owned by Sotiris G. Emmanuel ("Emmanuel"), to revitalize the Fore River Shipyard, located in Quincy and Braintree, Massachusetts. Compl. ¶ 6. Heavy Industries purchased most of Fore River Shipyard from the Massachusetts Water Resources Authority in May 1997. Id. ¶ 8. Emmanuel formed a second corporation, MHI, in 1997, to implement the revitalization project. Id. ¶ 10. In order to fund the project, MHI obtained a $55,000,000.00 loan from Fleet Bank, which was guaranteed by the federal government under a program administered by the United States Maritime Administration (the "Maritime Administration"). Id. ¶ 11. The parties closed the Fleet Bank loan on December 17, 1997. Id. MHI signed a security agreement (the "Security Agreement") granting a security interest in many of its assets to the federal government, as a condition of the government's guaranty of the Fleet Bank loan. Def.'s Mem. ex. A.
On November 24, 1997, MHI entered into a contract (the "Construction Contract") with O. Ahlborg & Sons ("Ahlborg"), whereby Ahlborg was to perform substantially all of the revitalization work on the site. Compl. ¶ 12. Ahlborg's full performance under the Construction Contract was bonded by National Fire, as surety, through a bond issued on March 4, 1998 (the "Surety Bond"). Id. ¶ 14. The Surety Bond stated that any disputes regarding the bond would be governed by Massachusetts law and that a two-year limitations period for filing "any proceeding, legal or equitable ... in any court of competent jurisdiction" would apply. Compl. Ex. A, ¶ 9.
MHI alleges that in 1999, Ahlborg materially breached the Construction Contract by failing substantially to complete construction. Compl. ¶ 28. On August 30, 1999, MHI gave notice to Ahlborg that the Construction Contract was terminated. Id. ¶ 32. The Maritime Administration then informed National Fire that, because of Ahlborg's default, National Fire had an obligation to pay the proceeds of the Surety Bond. Id. National Fire refused to pay, giving rise to the current litigation. Id. ¶ 35.
On October 7, 1999, the Maritime Administration sent National Fire a letter notifying National Fire that the Maritime Administration had "authorized MHI ..., at such time as it deems appropriate, to bring legal action in its own name against [National Fire] to enforce the terms and conditions of the [Surety Bond]." Pl.'s Opp'n Ex. A. The letter stated that this authorization was subject to Article Sixth, Section (m) of the Security Agreement,1 including the Maritime Administration's right to withdraw this authorization at any time and to settle any litigation brought by MHI. Id. Also, the letter noted that the Maritime Administration remained the only entity allowed to negotiate with National Fire relative to the claims under the Surety Bond. Id.
MHI defaulted on the Fleet Bank loan, and Fleet Bank called in the United States guarantee of the Fleet Bank loan in February 2000. Compl. ¶ 38. As a result, the Maritime Administration took possession of Fore River Shipyard. Id. MHI filed for Chapter 11 bankruptcy as a debtor in possession on March 13, 2000. Id. There is no indication that a trustee was ever appointed in MHI's bankruptcy case. On April 12, 2000, one month after MHI filed its Chapter 11 petition, the bankruptcy court issued an order granting the Maritime Administration "relief from the automatic stay to exercise its contractual right to remain as mortgagee in possession of the property." Def.'s Reply Ex. B, at 2. For example, the Maritime Administration was allowed to examine the shipyard's books. In return for allowing it to exercise these rights, the bankruptcy court required the Maritime Administration to "exercise custodial control over the Shipyard in a reasonable manner." Id. MHI filed this action against National Fire on March 8, 2002. MHI's Chapter 11 case was dismissed on March 20, 2002.
Three days after MHI filed this suit, MMBC Debt Holdings I, LLC ("MMBC"), which held a security interest in MHI's claims against National Fire, foreclosed on MHI's claims by a public auction held on March 11, 2002. MMBC's Mot. for Substitution or Joinder, at 3. MMBC, as sole bidder, purchased the claims at the auction. Id. On June 17, 2002, this Court joined MMBC as an additional plaintiff.
National Fire has moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. The motion to dismiss raises two issues. First, has the statute of limitations run on MHI's claims under the bond? Second, does MHI lack standing to file suit under the Surety Bond because Section (m) of the Security Agreement represented a total assignment of its rights under the bond?
For purposes of a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss, the Court must accept all facts in the complaint as true, grant all reasonable inferences from those facts in favor of the nonmovant, and decide whether a viable cause of action exists. Alternative Energy v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001). Ordinarily, a court may not consider material beyond that found in the complaint itself when adjudicating a 12(b)(6) motion, unless the motion is converted into one for summary judgment. Id. A "narrow exception" exists "for documents the authenticity of which are not disputed by the parties; for official public records; for documents central to plaintiffs' claim; or for documents sufficiently referred to in the complaint." Watterson v. Page, 987 F.2d 1, 3 (1st Cir.1993).
These exceptions are crucial to the adjudication of this motion, because both sides have submitted documents that are not found directly within the four corners of the complaint. National Fire submitted a December 17, 1997, Security Agreement between MHI and the Maritime Administration and the April 12, 2000, bankruptcy court order allowing the Maritime Administration to continue acting as mortgagee in possession, while MHI submitted the October 7, 1999, letter from the Maritime Administration to MHI authorizing MHI to sue on the Surety Bond. Neither side has disputed the authenticity of any of these three documents; thus, the court will consider them in this motion to dismiss. See Beddall v. State Street Bank & Trust Co., 137 F.3d 12, 17 (1st Cir.1998). Further, although the Security Agreement as a whole is not appended to the complaint or incorporated within it, its key section for purposes of this motion (Section (m)) is quoted at length within one of the complaint's exhibits and therefore may be considered. Compl. Ex. D, at 1. The bankruptcy court order is a matter of public record. Finally, the letter from the Maritime Administration to MHI is central to MHI's claims. The primary reason for not considering documents outside the complaint is to protect the plaintiff from unfair surprise, Watterson, 987 F.2d at 4 (citing Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir.1991)), and therefore the need for the rule is greatly reduced when it is the plaintiff (and not the defendant) who seeks to introduce additional documents. Thus, all three documents (the Security Agreement, court order, and letter) will be considered without converting National Fire's motion to dismiss into a motion for summary judgment.
National Fire argues that the statute of limitations on MHI's claims, specifically the two-year limitations period found within the Surety Bonds themselves, had expired on the date this action was filed and thus it must be dismissed.2 Section 108(a) of the United States Bankruptcy Code, 11 U.S.C. § 108(a), extends the limitations period for bankrupt parties under certain circumstances....
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