Mid-State Sur. Corp. v. Thrasher Engineering, Inc.

• Decision Date: 03 June 2008
• Docket Number: Civil Action No. 2:04-0813.
• Citation: Mid-State Sur. Corp. v. Thrasher Engineering, Inc., 575 F.Supp.2d 731 (S.D. W.Va. 2008)
• Court: U.S. District Court — Southern District of West Virginia
• Parties: MID-STATE SURETY CORPORATION, Plaintiff v. THRASHER ENGINEERING, INC., Defendant. Mid-State Surety Corporation, Plaintiff v. Diversified Enterprise, Inc. and International Fidelity Insurance Company, Defendants.

575 F.Supp.2d 731

MID-STATE SURETY CORPORATION, Plaintiff v. THRASHER ENGINEERING, INC., Defendant.

Mid-State Surety Corporation, Plaintiff v. Diversified Enterprise, Inc. and International Fidelity Insurance Company, Defendants.

Civil Action No. 2:04-0813.

United States District Court, S.D. West Virginia, at Charleston.

June 3, 2008.

COPYRIGHT MATERIAL OMITTED

Apryll H. Boggs, R. Scott Long, Kathy A. Brown, Hendrickson & Long, Charleston WV, Scott D. Cessar, Eckert Seamans Cherin & Mellott, Pittsburgh, PA, W. Thomas Ward, Ward & Associates, Williamson, WV, for Plaintiff.

John H. Tinney, John H. Tinney, Jr., Margaret M. Singleton, Meridith A. Osborne, The Tinney Law Firm, Carl L. Fletcher, Jr., Gene W. Bailey, II, Norman T. Daniels, Jr., Daniels Law Firm, Courtney Anne Kirtley, Edward D. McDevitt, Bowles Rice McDavid Graff & Love, Charleston, WV, Robert Dunlap, Beckley, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

JOHN T. COPENHAVER, JR., District Judge.

Pending is the motion for partial summary judgment of Mid-State Surety Corporation ("Mid-State"), filed February 6, 2006. Also pending is the motion for partial summary judgment of International Fidelity Insurance Company ("Fidelity"), initially filed April 3, 2006, as a memorandum in opposition to Mid-State's motion for partial summary judgment, and recharacterized as a motion for summary judgment by order entered September 5, 2007.¹

I. Background

A. Factual Background

In July 2000, the Mingo County Public Service District ("Mingo County") contracted with Holley Brothers Construction Company ("Holley") for the construction of a water treatment plant. (Def.'s Mem. Opp'n Mot. 2-3). Mid-State issued a performance bond on behalf of Holley for the construction. (Id. 3). Around March 2002, Mingo County declared Holley to be in default and terminated Holley for cause. (Id.). Thereafter, Mid-State solicited bids for completion of the construction as required by the performance bond. (Id.).

On August 5, 2002, Mid-State entered into a written completion agreement ("Completion Agreement") with Diversified Enterprise, Inc. ("Diversified") under which Diversified agreed to "perform all of the work and other responsibilities of Holley under and by virtue of the terms of the Contract, just as though Contractor [Diversified] had been the contractor under The Contract in the first instance. . . ." (Completion Agreement ¶ 2). Diversified further agreed to:

indemnify and save harmless Surety [Mid-State] from and against all liability, damages, loss, costs and expenses which Surety may sustain or incur in consequence of any act, omission or default of Contractor [Diversified] in the performance of the work under The Contract and this [Completion] AGREEMENT which gives rise to a claim against Surety.

(Id. ¶ 7). Mid-State required Diversified to obtain a performance bond for its work and name Mid-State as the owner. (Id. ¶ 9). On July 24, 2002, Fidelity issued an American Institute of Architects Document A312, December 1984 edition performance bond ("Performance Bond") for Diversified's work under the Completion Agreement, naming Diversified as principal and Mid-State as owner. (Def.'s Mem. Opp'n Mot. 3).

Diversified commenced construction on August 3, 2002. (Pl.'s Brief Supp. Mot. 3). Throughout the course of the construction, Fidelity sent Mid-State several "General Form Status Inquiries," which are form documents used by Fidelity to ascertain the progress of the construction. These forms state "[w]ithout prejudicing your right or affecting our liability under our bond ..., we would appreciate such of the following information as is now available." (General Form Status Inquiry). It then poses a number of questions and provides blank spaces for the bond owner to answer. (Id.). In January 2003, Mid-State notified Fidelity, by completing a "General Form Status Inquiry," that the approximate date for completion was April 2003. (Def.'s Mem. Opp'n Mot. 3).

By February or March of 2003, the plant was sufficiently completed for Mingo County to take possession and make water. (Id. 4; Def.'s Mem. Opp'n Mot. 3). On January 12, 2004, Mid-State responded to another "General Form Status Inquiry," notifying Fidelity that the project was complete in April 2003, that the acceptance of Diversified's work was "in dispute," that the "`percentage . . . of contract completed' was 100%," that there were unpaid bills for labor or materials, and that Mingo County would not pay out the retainages. (General Form Status Inquiry; Def.'s Mem. Opp'n Mot. 4).

Despite the fact that Mingo County was in possession of the plant and making water, Mingo County contended that there was still substantial work to be completed by Diversified under the contract. (Pl.'s Brief Supp. Mot. 4). Thus, Mingo County instituted an action on August 13, 2004 in state court against Mid-State and Diversified, Mingo County Public Service District v. Mid-State Surety Corp. & Diversified Enterprise, Inc., Civil Action No. 04-273 (Circuit Court of Wyoming County).

Four days later, on August 17, 2004, Mingo County's engineer certified Diversified's work as substantially complete. (Certificate of Substantial Completion). According to the Certificate of Substantial Completion, the date of substantial completion "is the date on which the construction is sufficiently completed in accordance with the contract documents that the project or a specified part of the project can be utilized for the purpose for which it was' intended." (Id.). It is also "the date on which the Owner accepts the system and assumes full responsibility for operation and maintenance." (Id.). The Certificate of Substantial Completion also incorporates a list of items remaining to be completed or corrected by the contractor and provides that the list is not exhaustive and "does not alter the responsibility of the Contractor to complete all work in accordance with the contract documents." (Id.). Diversified did not complete the list associated with the Certificate of Substantial Completion and thus never achieved final completion. (Shutt Aff. ¶ 4). The terms of the construction contract, incorporated by reference into the Completion Agreement, give the date of substantial completion further significance, providing, "[t]he CONTRACTOR shall guarantee all materials and equipment furnished and WORK performed for a period of one (1) year from the date of SUBSTANTIAL COMPLETION. . . . The Performance BOND shall remain in full force and effect through the guarantee period." (Construction Contract GC-21).

From December 10, 2004 to early 2005, Mingo County, Diversified, and Mid-State attempted to mediate Mingo County's state court action, but Diversified refused to contribute to any settlement. (Pl.'s Brief Supp. Mot. 5). Based upon Diversified's unwillingness to contribute to the settlement with Mingo County, Mid-State sent Fidelity a letter on January 10, 2005, stating that Mid-State was considering declaring Diversified in default and requesting a conference. (Letter, Jan. 10, 2005). This letter expressly stated that it was being sent pursuant to the formal notice requirements of the Performance Bond which, it is noted, provided for a conference. (Id.). Fidelity responded on February 4, 2005, advising Mid-State that it had referred the matter to Diversified and stating that Fidelity anticipated that Mid-State and Diversified would work together to resolve their problems. (Letter, Feb. 4, 2005). Fidelity's letter also informed Mid-State that unless Fidelity heard otherwise, it would assume that all outstanding issues were resolved between Diversified and Mid-State. (Id.). No conference was ever conducted in response to the January 10, 2005 letter. (Def.'s Mem. Opp'n Mot. 12).

Because Diversified continued to refuse to contribute to any settlement in Mingo County's state court action, Mid-State instituted the present action in federal court on January 26, 2005, against Diversified alleging breach of the completion agreement and seeking indemnity thereunder. (Pl.'s Brief Supp. Mot. 5; Def.'s Mem. Opp'n Mot. 6). Two days later, Mid-State and Mingo County finalized a settlement agreement and release in Mingo County's state court action. (Pl.'s Brief Supp. Mot. 5; Def.'s Mem. Opp'n Mot. 6). On February 8, 2005, Mid-State sent Fidelity a letter declaring Diversified to be in default. (Letter, Feb. 8, 2005). Mid-State again cited to the notice requirements of the Performance Bond in its letter. (Id.). On the same day that this letter was mailed; Mid-State added Fidelity as a party to this action in federal court, which was filed initially against Diversified only. (Def.'s Mem. Opp'n Mot. 6). Fidelity contends that February 8, 2005 is also the day that it first learned of Mingo County's state court action against Mid-State and Diversified, which by then had been settled for eleven days. (Id. 5).

B. Procedural Background

Mid-State's motion for partial summary judgment requests, among other things, that the court declare Fidelity liable for any judgment rendered against Diversified in this action. (Pl.'s Brief Supp. Mot. 22-23). Fidelity failed to file a timely response to Mid-State's motion due to a change in counsel. (Def.'s Mem. Opp'n Mot. 1). Once new counsel was in place, Fidelity filed a motion for leave to file an out of time reply to Mid-State's motion for summary judgment, followed by a memorandum in opposition to Mid-State's motion. (Id.). In this memorandum, Fidelity alleges that it has no obligation to perform under the Performance Bond inasmuch as Diversified did not default under the completion agreement, and further inasmuch as Mid-State failed to satisfy certain conditions precedent to Fidelity's obligations under the Performance Bond. (Id. 2).

Shortly after the parties concluded the briefing just noted, Mid-State and Diversified entered into an arbitration agreement and moved the court to stay the action pending conclusion of the arbitration....