Myers Controlled Power, LLC v. Fid. & Deposit Co. of Md.
| Citation | 476 F.Supp.3d 710 |
| Decision Date | 17 June 2020 |
| Docket Number | Case No. 1:18-CV-5427 |
| Parties | MYERS CONTROLLED POWER, LLC, Plaintiff, v. FIDELITY AND DEPOSIT COMPANY OF MARYLAND; Zurich American Insurance Company, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
Craig G. Penrose, Laurie & Brennan LLP, Chicago, IL, for Plaintiff.
Thomas Gerald Cronin, Courtney A. Nichol, Gordon & Rees Scully Mansukhani, Chicago, IL, for Defendants.
Plaintiff's motion for summary judgment [22] is granted. Defendants’ motion for summary judgment [31] is denied. The parties shall submit an agreed written status regarding the remaining claim in this matter by August 5, 2020.
MEMORANDUM OPINIONMyers Controlled Power, LLC ("Plaintiff") brings this diversity action against sureties Fidelity and Deposit Company of Maryland and Zurich American Insurance Company (collectively, "Defendants" or the "Sureties") over $2.1 million that the Sureties allegedly owe by virtue of a flow-down payment bond. Put simply, Myers was a subcontractor on a rehabilitation project of the Washington, D.C. Metro's Orange and Blue lines, a project for which the Sureties issued a payment bond. Plaintiff was initially paid for its work related to the project by non-party Truland Walker Seal Transportation in May and June of 2014. Myers completed its work on the project on June 18, 2014. Shortly thereafter, Truland declared bankruptcy. In July 2016, the U.S. Bankruptcy Court for the Eastern District of Virginia initiated an adversary proceeding against Plaintiff, which ultimately resulted in a finding that the payment by Truland to Plaintiff had been a preference. The bankruptcy court issued an order against Plaintiff for repayment of the $2.1 million it had earlier received, which was memorialized in a July 25, 2018 judgment and was affirmed by a district court on May 24, 2019. This action seeking payment of that $2.1 million from the Sureties was brought on August 9, 2018. Pending before the Court are cross-motions for summary judgment.
The material facts in this matter are undisputed, but the case presents a potentially dispositive, novel question of law relating to whether this action is time-barred by the statute of limitations. Before turning to the legal issues, the relevant background will be outlined in more depth.
In January 2011, Truland entered into a subcontract agreement with Clark Construction Group, the prime contractor on a rehabilitation project of the Orange and Blue subway lines in and around Washington, D.C. The total sum to be paid under that subcontract was $45 million. Truland further subcontracted with Nationwide Electrical Services, which in turn entered into a supplier subcontract with Plaintiff, Myers. The total to be paid under the Myers-NES subcontract was $17,041,113. Defendants jointly issued a payment bond in this case stating, in part, that "this Bond shall inure to the benefit of all persons supplying labor and material in the prosecution of the work provided for ... and that such person may maintain independent actions upon this bond in their own names." Dkt. 33 at 2-4.
In April 2014, Truland engaged a restructuring officer. The restructuring officer prepared a memorandum which stated that Truland was "out of trust" with its suppliers and indicated that Truland had received funds to pay subcontractors but had used the money on other projects. Truland was found to be "out of trust" by approximately $23.7 million. On May 9, 2014, Clark formally notified Truland that it was in default in a letter that was also provided to Defendants in this case. On May 13, 2014, Clark informed a Myers executive vice president that Dkt. 23 at 4. Plaintiff, Clark, and Truland ultimately entered into a Joint Check Agreement. Fidelity and Deposit Company of Maryland also signed the Joint Check Agreement.
On May 27, 2014, Plaintiff released equipment with a cost of $1,819,206.31. This Bill of Sale for the released equipment included $181,920.63 in "Overhead/Profit," for a total of $2,001,126.94. On June 18, 2014, Myers released additional equipment with a cost of $261,667.00. The June 18th Bill of Sale included an additional $26,166.70 for "Overhead/Profit," for a total Invoice of $287,833.70. On July 11, 2014, Clark delivered a check to Truland in the amount of $2,107,039.86. The check was payable jointly to Myers and Truland. Truland endorsed the check and had it delivered back to Clark. Clark then forwarded the check to Myers.
Shortly thereafter, on July 23, 2014, Truland filed a voluntary bankruptcy petition under Chapter 7 in the United States Bankruptcy Court for Eastern District of Virginia, Case No. 14-2766-BFK. On July 21, 2016, the Trustee in the bankruptcy case filed an adversary proceeding against Myers, Case No. 16-1151-BFK. On July 25, 2018, the court in the adversary action issued a memorandum opinion after conducting a trial and receiving evidence on February 1, 2018 and March 29, 2018. The Court determined the check issued by Clark jointly to Truland and Myers for Myers’ delivery of materials was a preference under 11 U.S.C. § 547. In conjunction with the Memorandum Opinion, the bankruptcy court also entered a judgment order in favor of the Trustee and against Myers for $2,107,039.86 (the amount of paid to Plaintiff in July 2014), plus pre-judgment interest at the federal rate. On May 24, 2019, the district court affirmed the decision.
On March 5, 2018 (before the judgment in the adversary action), Plaintiff made a formal bond claim notifying all parties including the Defendants of the Adversary Claim. Defendants received the Notice of Claim on March 8, 2018. On July 26, 2018, Myers (through counsel) notified Defendants via email of the judgment in the Adversary Action. To date, Defendants have not made any payment to Myers under the Bond. The Defendants have filed a contingent secured Proof of Claim in the Bankruptcy Case arising under the indemnity agreement under the Bond.
This action was filed on August 9, 2018. Plaintiff moved for summary judgment on Count 11 on June 6, 2019. Defendants cross-moved for summary judgment on July 10, 2019.
This case presents a novel, purely legal question related to the interplay of the bankruptcy judgment (which clawed back a payment Plaintiff had previously received) and the statute of limitations. Put simply, did Plaintiff's action accrue2 in April or June of 2014 (when the original default or the completion of work occurred, respectively) or in 2018 when the judgment was entered in the bankruptcy court ordering repayment of the $2.1 million? Neither party has pointed to directly controlling precedent on this issue, and neither party has cited to any case dealing with a directly analogous issue. The Court also has located no such cases in its review of the matter.
Before the Court are cross motions for summary judgment. Summary judgment should be granted if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). There are no disputes as to the material facts in this case. The dispute, rather, revolves around what the legal effect springs from the undisputed facts. Thus, the question turns to whether Plaintiff or Defendants are entitled to judgment as a matter of law as to the first count in the complaint.
A federal court in a diversity action must apply the choice-of-law rules of the jurisdiction in which it sits. Rexford Rand Corp. v. Ancel, 58 F.3d 1215, 1219 (7th Cir. 1995). Illinois courts apply the Second Restatement method of choice-of-law analysis and begin by characterizing the issue in terms of substantive law. Ruiz v. Blentech Corp., 89 F.3d 320, 324 (7th Cir. 1996). Illinois courts have adopted the doctrine of "depecage," which refers to the process of dividing a case into individual issues, each subject to a separate choice-of-law analysis. Ruiz, 89 F.3d at 324. In the absence of a conflict, Illinois law applies as the law of the forum. Dearborn Ins. Co. v. Int'l Surplus Lines Ins. Co., 308 Ill. App. 3d 368, 373, 241 Ill.Dec. 689, 719 N.E.2d 1092, 1096 (1999).
In this case, Plaintiff has argued a theory of liability under either Virginia or Illinois law, and Defendants have not devoted any argument as to the issue of general surety liability principles. Rather, Defendants have focused their defense on the argument that this action is barred by the statute of limitations. Given the facts of the case, it appears clear that if a substantive dispute existed, the substantive law of Virginia would apply. However, Defendants have not briefed the issue of liability on the bond in the first instance (again, instead only raising the statute-of-limitations affirmative defense) and thus the Court need not analyze this issue in depth.
"When its jurisdiction is based on diversity of citizenship, a federal court is obliged to apply the statute of limitations of the state in which it sits." Reinke v. Boden, 45 F.3d 166, 170 (7th Cir. 1995) (citing Guaranty Trust Co. of New York v. York, 326 U.S. 99, 110, 65 S. Ct. 1464, 1470, 89 L. Ed. 2079 (1945) ). The Court thus is obliged to apply the proper Illinois statute of limitations. In any event, the outcome of this case is not impacted by which potentially relevant statute of limitations applies. The parties have argued that either the Illinois construction statute of limitations, 735 ILCS 5/13-214, or the Illinois,3 Virginia,4 or Washington, D.C.5 bond statutes of limitations apply.
The Illinois construction statute provides for a four-year statute of limitations, and the bond statutes each...
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